The Neighborhood Effect of Real Estate Maintenance

Posted: 13 Oct 2004

See all articles by Andrey D. Pavlov

Andrey D. Pavlov

Simon Fraser University (SFU) - Finance Area

George Blazenko

Simon Fraser University (SFU) - Finance Area

Abstract

We investigate the economics of real estate investment when maintenance of a property enhances neighborhood value. Because a property owner does not recognize this positive externality for his/her neighbor, he/she under-maintains. Smaller properties benefit most from this externality. We show that subsidizing the maintenance expenses of properties can induce socially optimal maintenance. Without disturbing social optimality, the maintenance subsidy can be financed with either a flat tax or a tax that is proportional to the land value or the cost of the improvement. The flat tax is less costly. Commonly used subsidies in the real estate industry based on loan guarantees do not promote socially optimal maintenance.

Keywords: maintenance, real estate

Suggested Citation

Pavlov, Andrey D. and Blazenko, George W., The Neighborhood Effect of Real Estate Maintenance. Available at SSRN: https://ssrn.com/abstract=602464

Andrey D. Pavlov (Contact Author)

Simon Fraser University (SFU) - Finance Area ( email )

Vancouver, British Columbia V5A 1S6
Canada
604 291 5835 (Phone)
604 291 4920 (Fax)

George W. Blazenko

Simon Fraser University (SFU) - Finance Area ( email )

Burnaby, British Columbia V5A 1S6
Canada

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