The effect of public target on the public-private partnership (PPP) residential development
Abstract
A growing importance of public-private partnership (PPP) in public housing projects has drawn much attention. This paper presents a theoretical analysis exploring the effect of the public target on the private’s optimal strategy in a PPP housing project. An option-based model is established to show that an increase in the proportion of public housing will delay the project development. It indicates that the government needs to consider the trade-off between the waiting time and the supply of public housing. On the other hand, due to the delay effect, the expected project value would rise because the private developer is willing to wait for a better environment in the presence of a rise in public housing. Both private and public sector can benefit from this accurate evaluation model and its implications.
Keyword : housing supply, optimal development, project risk, public housing, public-private partnership
How to Cite
Liu, Y., Xu, Y., & Wang, Z. (2018). The effect of public target on the public-private partnership (PPP) residential development. International Journal of Strategic Property Management, 22(5), 415-423. https://doi.org/10.3846/ijspm.2018.5224
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Cheah, C. Y. J., & Liu, J. (2006). Valuing governmental support in infrastructure projects as real options using Monte Carlo simulation. Construction Management and Economics, 24, 545-554. https://doi.org/10.1080/01446190500435572
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Leung, B. Y. P., & Hui, E. C. M. (2005). Evaluation approach on public-private partnership (PPP) urban redevelopments. International Journal of Strategic Property Management, 9, 1-16.
Li, B., Akintoye, A., Edwards, P. J., & Hardcastle, C. (2005). Critical success factors for PPP/PFI projects in the UK construction industry. Construction Management and Economics, 23(5), 459-471. https://doi.org/10.1080/01446190500041537
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Massey, D. S., & Kanaiaupuni, S. M. (1993). Public housing and the concentration of poverty. Social Science Quarterly, 74(1), 109-122.
Norris, M., & Hearne, R. (2016). Privatizing public housing redevelopment: grassroots resistance, co-operation and devastation in three Dublin neighbourhoods. Cities, 57, 40-46. https://doi.org/10.1016/j.cities.2015.12.006
Ong, S. E., & Sing, T. F. (2002). Price discovery between private and public housing markets. Urban Studies, 39(1), 57-67. https://doi.org/10.1080/00420980220099069
Quigg, L. (1993). Empirical testing of real option‐pricing models. The Journal of Finance, 48(2), 621-640. https://doi.org/10.1111/j.1540-6261.1993.tb04730.x
Sarkar, S. (2000). On the investment-uncertainty relationship in a real options model. Journal of Economic Dynamics & Control, 24(2), 219-225. https://doi.org/10.1016/S0165-1889(99)00005-6
Talen, E., & Koschinsky, J. (2014). The neighborhood quality of subsidized housing. Journal of the American Planning Association, 80(1), 67-82. https://doi.org/10.1080/01944363.2014.935232
Titman, S. (1985). Urban land prices under uncertainty. American Economic Review, 75(3), 505-514.
Van Kempen, E. T. (1994). The dual city and the poor: social polarization, social segregation and life chances. Urban Studies, 31(7), 995-1015. https://doi.org/10.1080/00420989420080911
Wong, K. P. (2007). The effect of uncertainty on investment timing in a real option model. Journal of Economic Dynamics & Control, 31, 2152-2167. https://doi.org/10.1016/j.jedc.2006.07.002
Xu, Y., Chan, A.P., & Yeung, J. F. (2010). Developing a fuzzy risk allocation model for PPP projects in China. Journal of Construction Engineering and Management, 136(8), 894-903. https://doi.org/10.1061/(ASCE)CO.1943-7862.0000189
Xu, Y., Yeung, J. F., & Jiang, S. (2014). Determining appropriate government guarantees for concession contract: lessons learned from 10 PPP projects in China. International Journal of Strategic Property Management, 18(4), 356-367. https://doi.org/10.3846/1648715X.2014.971088
Yao, H., & Pretorius, F. (2014). Demand uncertainty, development timing and leasehold land valuation: empirical testing of real options in residential real estate development. Real Estate Economics, 42(4), 829-868. https://doi.org/10.1111/1540-6229.12052
Yuan, J., Guang, M., Wang, X., Li, Q., & Skibniewski, M. J. (2012). Quantitative SWOT analysis of public housing delivery by public–private partnerships in China based on the perspective of the public sector. Journal of Management in Engineering, 28(4), 407-420. https://doi.org/10.1061/(ASCE)ME.1943-5479.0000100
Aurand, A. (2013). Does sprawl induce affordable housing? Growth and Change, 44(4), 631-649. https://doi.org/10.1111/grow.12024
Bar-Ilan, A. & Strange, W. C. (1996). Investment lags. American Economic Review, 86(3), 610-622.
Barke, M., & Clarke, J. (2016). Residential growth in Newcastle upon Tyne’s city centre: the role of the public and private sectors. Journal of Housing and the Built Environment, 31(1), 141-166. https://doi.org/10.1007/s10901-015-9444-7
Caldera, A., & Johansson, Å. (2013). The price responsiveness of housing supply in OECD countries. Journal of Housing Economics, 22(3), 231-249. https://doi.org/10.1016/j.jhe.2013.05.002
Cheah, C. Y. J., & Liu, J. (2006). Valuing governmental support in infrastructure projects as real options using Monte Carlo simulation. Construction Management and Economics, 24, 545-554. https://doi.org/10.1080/01446190500435572
Chen, C., & Doloi, H. (2008). BOT application in China: driving and impeding factors. International Journal of Project Management, 26(4), 388-398. https://doi.org/10.1016/j.ijproman.2007.07.002
Dixit, A. K., & Pindyck, R. S. (1994). Investment under uncertainty. Princeton: Princeton University Press.
Dormois, R., Pinson, G., & Reignier, H. (2005). Path-dependency in public–private partnership in French urban renewal. Journal of Housing and the Built Environment, 20(3), 243-256. https://doi.org/10.1007/s10901-005-9008-3
Heikkila, E., Gordon, P., Kim, J. I., Peiser, R. B., Richardson, H. W., & Dale-Johnson, D. (1989). What happened to the CBD-distance gradient? Land values in a policentric city. Environment and Planning A, 21(2), 221-232. https://doi.org/10.1068/a210221
Ho, D. K. H., Hui, E. C., & Ibrahim, M. F. B. (2009). Asset value enhancement of Singapore’s public housing Main Upgrading Programme (MUP) policy: a real option analysis approach. Urban Studies, 46(11), 2329-2361. https://doi.org/10.1177/0042098009342451
Hui, E. C. M., Zhong, J., & Yu, K. (2015). Housing policy, work-residence mismatch and poverty concentration. Habitat International, 48, 198-208. https://doi.org/10.1016/j.habitatint.2015.03.011
Jacob, B. A. (2004). Public housing vouchers and student achievement: evidence from public housing demolitions in Chicago. American Economic Review, 94(1), 233-258. https://doi.org/10.1257/000282804322970788
Kwak, Y. H., Chih, Y., & Ibbs, C. W. (2009). Towards a comprehensive understanding of public private partnerships for infrastructure development. California Management Review, 51(2), 51-78. https://doi.org/10.2307/41166480
Leung, B. Y. P., & Hui, E. C. M. (2005). Evaluation approach on public-private partnership (PPP) urban redevelopments. International Journal of Strategic Property Management, 9, 1-16.
Li, B., Akintoye, A., Edwards, P. J., & Hardcastle, C. (2005). Critical success factors for PPP/PFI projects in the UK construction industry. Construction Management and Economics, 23(5), 459-471. https://doi.org/10.1080/01446190500041537
Li, D., Chen, H., Hui, E. C. M., Xiao, C., Cui, Q., & Li, Q. (2014). A real option-based valuation model for privately-owned public rental housing projects in China. Habitat International, 43, 125-132. https://doi.org/10.1016/j.habitatint.2014.03.001
Li, D., Guo, K., You, J., & Hui, E. C. M. (2016). Assessing investment value of privately-owned public rental housing projects with multiple options. Habitat International, 53, 8-17. https://doi.org/10.1016/j.habitatint.2015.10.018
Liu, J., Cheah, C. Y. J. (2009). Real option application in PPP/PFI project negotiation. Construction Management and Economics, 27(4), 331-342. https://doi.org/10.1080/01446190902807071
Massey, D. S., & Kanaiaupuni, S. M. (1993). Public housing and the concentration of poverty. Social Science Quarterly, 74(1), 109-122.
Norris, M., & Hearne, R. (2016). Privatizing public housing redevelopment: grassroots resistance, co-operation and devastation in three Dublin neighbourhoods. Cities, 57, 40-46. https://doi.org/10.1016/j.cities.2015.12.006
Ong, S. E., & Sing, T. F. (2002). Price discovery between private and public housing markets. Urban Studies, 39(1), 57-67. https://doi.org/10.1080/00420980220099069
Quigg, L. (1993). Empirical testing of real option‐pricing models. The Journal of Finance, 48(2), 621-640. https://doi.org/10.1111/j.1540-6261.1993.tb04730.x
Sarkar, S. (2000). On the investment-uncertainty relationship in a real options model. Journal of Economic Dynamics & Control, 24(2), 219-225. https://doi.org/10.1016/S0165-1889(99)00005-6
Talen, E., & Koschinsky, J. (2014). The neighborhood quality of subsidized housing. Journal of the American Planning Association, 80(1), 67-82. https://doi.org/10.1080/01944363.2014.935232
Titman, S. (1985). Urban land prices under uncertainty. American Economic Review, 75(3), 505-514.
Van Kempen, E. T. (1994). The dual city and the poor: social polarization, social segregation and life chances. Urban Studies, 31(7), 995-1015. https://doi.org/10.1080/00420989420080911
Wong, K. P. (2007). The effect of uncertainty on investment timing in a real option model. Journal of Economic Dynamics & Control, 31, 2152-2167. https://doi.org/10.1016/j.jedc.2006.07.002
Xu, Y., Chan, A.P., & Yeung, J. F. (2010). Developing a fuzzy risk allocation model for PPP projects in China. Journal of Construction Engineering and Management, 136(8), 894-903. https://doi.org/10.1061/(ASCE)CO.1943-7862.0000189
Xu, Y., Yeung, J. F., & Jiang, S. (2014). Determining appropriate government guarantees for concession contract: lessons learned from 10 PPP projects in China. International Journal of Strategic Property Management, 18(4), 356-367. https://doi.org/10.3846/1648715X.2014.971088
Yao, H., & Pretorius, F. (2014). Demand uncertainty, development timing and leasehold land valuation: empirical testing of real options in residential real estate development. Real Estate Economics, 42(4), 829-868. https://doi.org/10.1111/1540-6229.12052
Yuan, J., Guang, M., Wang, X., Li, Q., & Skibniewski, M. J. (2012). Quantitative SWOT analysis of public housing delivery by public–private partnerships in China based on the perspective of the public sector. Journal of Management in Engineering, 28(4), 407-420. https://doi.org/10.1061/(ASCE)ME.1943-5479.0000100