How Renewal of Urban Villages Affects Their Externalities on Housing Prices: Heterogeneous Analysis from Hangzhou, China

Chinese cities have experienced large-scale urban expansion since the 1978 reform and opening up. During the rapid development, rural villages have been absorbed and transformed into urban villages. Urban villages influence residents’ lives and the housing market. However, studies on such interaction are not comprehensive. Although renewal plans have been executed in many Chinese cities, little empirical evidence on the effect of renewal was raised. Most studies obtained an average effect while neglected the varying influences of urban villages on people from different social classes. Thus, the real mechanism of the effect of urban villages and the renewal remains unclear. Therefore, this study uses the hedonic price model, the difference-in-difference model, and the quantile regression model to explore the impact of urban villages and the renewal. The empirical results show that: (1) from the overall perspective, urban villages show negative externalities on the surrounding housing price – housing price drops by 0.005% with every 1% closer to urban villages and decreases by 0.023% with every 1% increase in the scale of urban village; (2) from the social perspective, the effect of urban villages presents significant social heterogeneity – residents of higher-priced housing are more negatively affected by urban village accessibility and scale; and (3) urban village renewal positively affects surrounding housing price and compensates the negative externalities of urban village accessibility and scale. In addition, such compensating effect is significantly higher on higher-priced housing than that on lower-priced housing. The implications of this study help the government to carry out renewal plans orderly, help developers to make targeted investment strategies, and help homebuyers to make suitable purchase decisions, contributing to the sustainable development of cities.