External Benefits of Brownfield Redevelopment: An Applied Urban General Equilbirum Analysis

Does brownfield redevelopment warrant government support? We explore several external benefits in an urban general equilibrium framework. Preferences are modelled such that demand for housing units in the city is downward sloping, which yields a more general setup than the extreme open and closed city cases. We shed light on the relative importance of general equilibrium effects of nonmarginal redevelopment projects and we isolate the external benefits of the removal of a local nuisance, the exploitation of agglomeration economies and the preservation of open space at the urban fringe. A numerical application indicates that local nuisance and agglomeration effects may push social returns significantly beyond the value of redeveloped land that accrues to its owner. However, depending on the price elasticity of urban housing demand and the strength of agglomeration economies, the amount of preserved greenfield land may be small and it only generates additional benefits to the extent that direct land use policies fail to internalize its value as open space.