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Abstract
This paper argues that old institutional economics (OIE) is well-placed to provide a conceptual framework for the analysis of issues surrounding property price developments. This is particularly true in arenas where qualitative factors cause a change that is discontinuous from the previous structure, such as amid urban regeneration. In this paper first the basic principles of OIE are outlined and a meta-theoretical position established. Then it is argued how this approach has potential applicability for explaining the house price impacts of decision making regarding urban regeneration. The study tests an OIE inspired typology of price and quality changes on processes of urban renewal within localised housing market areas. In doing so, empirical material is presented through two case studies: one from Amsterdam and the other from Budapest. Findings from these circumstances illustrate the value of an OIE approach for analysing house prices, quality elements and neighbourhood specific characteristics of urban regeneration. More generally, the study shows that OIE has plenty to offer for a ‘patchy’ and evolving problem area such as the analysis of urban property price development.
Notes
1. I am indebted to one of the referees for this point.
2. Indeed both cities under study include a textbook case on gentrification: district IX in Budapest and de Pijp in Amsterdam, respectively. Arguably the bulk of current gentrification literature that concerns primarily discursive or ethnographic material (e.g. Special issue of Environment and Planning A, vol. 39) is somewhat out of scope here, when the intention is to try and isolate a few micro-level influences: price, dwelling and environment quality, the role of key actors, and the renewal process.
3. Note that Scott’s account is explicitly social constructivist whereas Vatn’s is (equally explicitly) realist.
4. NIE is essentially about the efficiency of institutions (Vatn, Citation2005, p. 176). This variant of institutionalism is not discussed in detail in this contribution, because, while focusing on the marketplace, I do not feel completely comfortable in the basic reasoning offered by this school of thought: that the housing market and the property rights always ought to come first in the scientific analysis and the practical implementations like. This is in simplicity the core of the failed World Bank policy experiment of the 90s.
5. For real estate applicability, Adams et al. (Citation2005b) make a similar argument: that the state can change the property market “for better or for worse.”
6. The corresponding logic of NIE is in fact none too different to that of neoclassical economic optimisation; it is to observe that NIE as such is built around the second-level optimisation problem of how to set ‘optimal’ institutional constraints.
7. An example of various institutional economic approaches is the ‘Coase’s theorem’, after the Nobel Prize winner Ronald Coase (e.g. Buitelaar & Segeren, Citation2008): that property rights would not matter in the absence of TC. The crux here is that Coase himself admitted the omnipresence of TC and therefore the allocation of property rights does matter – contrary to popular belief.
8. However, experimental economists Bénabou and Tirole (Citation2009) rather cynically point out that the strive for image and respect could be seen as immaterial rewards.
9. Of course the NCE, Austrian and NIE schools argue for individualism and thereby disagree with OIE on this point.
10. While the findings from all these case studies resonate with OIE, it needs to be clarified that only the first two abovementioned studies seem to be conscious about their position, whereas the last one does not make the connection to theoretical categorisations, but concentrates on empirical issues instead.
11. Or a reduced demand is pushing prices down, which also may happen of course, as the recent financial crisis has shown us.
12. From an urban economic theorizing point of view, this is about closing the ‘value gap’, which also means partially closing the ‘rent gap’ (cf. Clark, Citation1987).
13. The other reason is familiarity – the author having spent considerable time periods in each country.
14. The empirical material presented here is the same as in Kauko (2009). In the prior article an institutional framework was absent, however.
15. Similar analysis was carried out in relation to quality change, but this is not shown here because of space-saving reasons. (It is available from the author upon request.)
16. In fact, the opposition won a landslide victory in April 2010.
17. The most extreme example is the Mayor of Budapest District VII, who at the time of writing is in prison!
18. In the most dilapidated part of district VIII the share of public rental stock is at the time of writing still as high as 25%.
