PSI - Issue 64

Benedetto Manganelli et al. / Procedia Structural Integrity 64 (2024) 1720–1726 B.Manganelli, P. De Paola, F.P. Del Giudice / Structural Integrity Procedia 00 (2019) 000 – 000

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to the inability to control the effects of "age," i.e., to consider the depreciation that age determines on the built environment, generated both by physical deterioration and by income decay. Several researchers have attempted to overcome this problem. The first attempts were made by Cagan (1971) and Hall (1971), who suggested imposing a priori restrictions on coefficients. Palmquist (1980, 1982) used an independent estimate of depreciation, assuming a stable depreciation rate over time. This latter approach was later abandoned and surpassed by Chau et al. (2005), who developed a repeat sales model that allows for non-linear depreciation in order to separate the effects of age on the built environment and time. Another line of research has been conducted by attempting to combine the repeat sales model and the hedonic price model (Case and Quigley, 1991; Quigley, 1995; Hill et al., 1997; Englund et al., 1998). Finally, Clapp and Giaccotto (1998) tried to avoid directly inserting the age variable into the model, but instead used time dummies. Csillaghy in 1985 had already understood that the economic life of a building is marked by factors such as physical degradation and the increase in value of urban land (land rent), without, however, analyzing a possible interaction between the two components. Later, some studies focused on the concept of external obsolescence , a kind of negative land rent, determined thus by external factors, independent of the technological and physical characteristics of the building, also in this case without separating the two components of value (land and built). External obsolescence derives from both environmental and cyclical changes in the real estate market. Common phenomena that give rise to external obsolescence include, for example, increased vehicular traffic and deterioration of surrounding property conditions (M. Wilhelmsson, 2008). These are therefore extrinsic characteristics of the property, which negatively influence the demand for real estate and involve all assets located in a homogeneous market area (Clapp et al., 2010). The cited studies also show that the price function in relation to age has a negative gradient until it cancels out and then shows a reversal (convex depreciation curves). Wilhelmsson (2008) attributes the reversal of value to the so-called vintage effect : a premium connected to charm, exclusivity, design, and quality of construction, i.e., physical, historical, and architectural characteristics of the building directly related to the construction period, while Clapp et al. (2010) justify this reversal by hypothesizing that older properties have been renovated, thus with higher construction quality and greater chances of survival. Although factors related to the characteristics of the building (vintage effect or renovation interventions) are decisive in justifying the reversal of value dynamics, more often than not, the reversal in the price dynamics of a building is exclusively due to the effect of urban rent. A more correct interpretation of market value dynamics would involve separate analysis of the two phenomena, on the one hand, the depreciation of the built environment and on the other, land rent (positive or negative). Florian Kajuth (2021) defines "land" as a non-reproducible factor, whose overall value does not represent a cost factor but an asset value. Yangfei et al. (2018), by decomposing the property value into two distinct and separate values, the land area and the structure, show that, all else being equal, older properties, i.e., those with an older structure, have a higher price growth rate compared to newly constructed buildings. As time passes and the value of the land area increases, the total value of the entire property also increases, with higher growth rates for older properties compared to newer ones. The separation of the two value dynamics (the land and the structure) provides an explanation for this evidence, given that older properties have a lower amortization rate compared to newer properties, as confirmed by numerous other studies (S. Bokhari et al., 2018). There are numerous variables that affect land rent, and it is difficult to generate models capable of predicting its dynamics. Many studies have instead analyzed only the phenomenon of built depreciation. Almost all of the literature agrees on the identification of factors that contribute to the reduction in the cost value of buildings. The physical wear and tear of the building, which, for the sole purpose of quantifying the associated depreciation, can be broken down into two elements: pure hold age and income decline (Manganelli B., 2011; Bochi V., 1947). Pure hold age is determined by the progressive reduction in the service life of the asset; income decline can be traced to the reduced usefulness of an asset already in use compared to the corresponding new asset, resulting from the expenses to be incurred for extraordinary maintenance interventions capable of restoring the initial efficiency. What constitutes the indispensable link between the two elements is the prediction of the service life of the building. Depreciation due to pure age essentially depends on the forecast of the remaining service life, conditioned by the more or less regular maintenance already carried out and to be carried out on the building; the forecast of maintenance costs to be incurred in the future, higher as the need to ensure good performance (at least competitive with those of a new property) increases, defines depreciation due to income decline (Jiro Yoshida, 2020). There is also functional (or technical ) obsolescence resulting from non-compliance or poor compliance with new quality standards (Dias, 2013). And finally, economic obsolescence , due to both technological changes, involving the design and construction system or the materials used, resulting in lower operating costs and/or greater efficiency, and changes in social perceptions, either individual or collective, related to cultural or simply aesthetic characteristics (Silva, 2022). Brand (1997) argues that the loss of ability to meet minimum performance requirements occurs for two reasons associated with different