Abstract:
This thesis examines the effect of real option to redevelop on the selling price of property as well as investigates the relationship between redevelopment option and a set of volatility measurements in the New Zealand single-family housing market. I generally follow Clapp, Salavei & Wong (2012) and use the intensity ratio of assessed building value over assessed land value as a proxy for the real option of redevelopment. The analyses are based on residential property sales at nation-level, island-level and region-level from 2010 to 2012. By performing a bundle of OLS regressions, I show that there is a significant and positive effect of redevelopment option on property sale price in the national housing markets, two island-level markets as well as most regional markets in the North Island. And this positive effect is not significantly sensitive to a different proxy for redevelopment option. Additionally, the majority housing markets are able to report the existence of positive redevelopment option value, and the computed redevelopment option value is generally larger than that documented in Clapp, Salavei & Wong (2012). On the other hand, I find that the association between redevelopment option and property value is not more pronounced for older houses. And there is no significant relationship between the value of redevelopment option and several volatility measurements in Tobit and Logit regressions.