Cities 71 (2017) 11–18

Contents lists available at ScienceDirect

Cities

journal homepage: www.elsevier.com/locate/cities

Viewpoint Collective benefits of an urban transformation: Restoring the Navigli in MARK

⁎ Flavio Boscaccia, Roberto Camagnib, Andrea Caragliub, , Ila Maltesea, Ilaria Mariottia a DAStU-Politecnico di Milano, Via Bonardi 3, 20133 Milano, b ABC-Politecnico di Milano, Piazza Leonardo da Vinci 32, 20133 Milano, Italy

ARTICLE INFO ABSTRACT

JEL classification: The aim of this paper is to assess the collective benefits for the metropolitan city of Milan arising from the project R11 to restore the Navigli, the ancient urban flowing underground for a large part. R14 In this paper two of the most important impacts of this urban transformation, mostly of intangible nature, are R15 considered. On the one hand, the improvement of urban and environmental quality has been estimated through Keywords: the hedonic price methodology, considering expected price changes both in the residential as well as in the Urban transformation commercial real estate markets; on the other hand, a multiplier effect on infrastructure investment, generating Project appraisal an increase in final income, has been calculated using Input–Output Tables. Empirical results confirm the col- Waterways lective net advantage of the urban transformation. Hedonic prices I-O tables

1. Introduction Traditional financial methodologies do not allow us to capture the large and complex set of benefits typically accruing to citizens in terms In the first half of the 1900s, the city of Milan was called “Little of quality of life. In fact, this project is not expected to generate relevant ” because of its network. This network allowed moving direct revenues: the vast majority of waterways activities concerns in- freight between commercial centres and importing heavy construction stead walking paths or sightseeing at locks. Instead, the whole city is materials and food to the city center. Over the 19th and 20th centuries going to exploit urban and environmental quality improvements and freight traffic declined and, consequently, so did revenues. As a result, external costs reductions (mostly in terms of reduced congestion, noise, in 1929 the city canals were covered in order to make way for an ex- and pollution). Recreational amenities, environmental quality im- panded system of buses and trams. Only two major canals (Naviglio provements, and the reduction of negative externalities can be con- Grande and Naviglio Pavese), located in the South of the city, were left sidered as public goods proper2 provided by the Municipality, for which open. These canals are still running through the city in a very lively the latter would charge no fee. Some private benefits would also occur, neighbourhood, where restaurants and cafes thrive along their banks. mainly in terms of real estate price increases along the pathway of the In 2011 an informal referendum was held, and the project to re- canal, additional employment in both the ex-ante and ex-post project storing the Navigli garnered nearly 95% of the votes. This project phases, and new businesses. promotes the reactivation of the waterways system for about 8 km, Finally, costs and benefits must be compared in order to inform the connecting the North of the city to the South bordering Milan's central decision-maker and allow a sound opinion about whether the possible business district (CBD) to the East. realisation of this urban transformation would eventually pay-off. This While the costs of a large urban transformation can be more easily paper contributes to the debate whether the restoration of the Navigli in evaluated by means of engineering and architectural standard costs Milan would be associated to overall net benefits. tables,1 the same cannot be said on the side of expected economic This paper estimates: benefits.

⁎ Corresponding author. E-mail addresses: fl[email protected] (F. Boscacci), [email protected] (R. Camagni), [email protected] (A. Caragliu), [email protected] (I. Maltese), [email protected] (I. Mariotti). 1 A recent appraisal (Boscacci et al., 2015) estimates a grand total of 351 million Euros of costs for the realisation of the whole project, including all costs directly related to the construction works as well as those related to the changes in motorways and sidewalks. This cost estimate is adopted in our paper, as will be further explained in the empirical sections. 2 In fact this type of benefits would be characterized by full non rivalry and non-excludability. http://dx.doi.org/10.1016/j.cities.2017.06.018 Received 28 July 2016; Received in revised form 22 June 2017; Accepted 27 June 2017 0264-2751/ © 2017 Elsevier Ltd. All rights reserved. F. Boscacci et al. Cities 71 (2017) 11–18

(i.) the net increase of public utility generated by the project, valued market price (Rosen, 1974). Housing is a heterogeneous good, com- in terms of a local willingness to pay (WTP), ‘revealed’ by the prising not only internal characteristics (such as central heating, market value of residential and commercial3 real estate already availability of a lift, building quality) but also of location-specific benefitting from an urban quality condition similar to the future characteristics (accessibility to the city centre, quality of urban space). one (i.e. presence of an open canal); Apartment-specific characteristics could be valued by the construction (ii.) the multiplier effects on local income generated by the public cost, while context-specific characteristics reflect locational ad- infrastructure investment. vantages, translated in monetary terms as land rents on the basis of the implicit WTP for these advantages (Camagni, 2012, Ch. 6). These two goals are pursued, respectively, by means of the hedonic HPM enjoys strong economic microfoundations; therefore, it has price method (HPM; Rosen, 1974), and by the estimation of the direct, been used in different fields and for different purposes we classify as indirect and induced effects deriving from the implementation of the follows (Camagni & Capello, 2006): project, as can be inferred through a regional Input-Output table (I-O; Richardson, 1972) - in this case the I-O table of the region. • to estimate the value of environmental externalities in urban areas The HPM is utilized in a novel way: not only as a means to give a (traffic congestion, noise and air pollution); value to immaterial urban assets and public goods, but specifically in • to estimate the quality of public goods and amenities, natural and order to evaluate the collective advantages engendered by a new public cultural assets, urban quality of life; scheme providing some of these immaterial assets in a relevant part of • to assess ex post and ex ante urban policies or projects. the city, as suggested in Camagni and Capello (2006). The second appraisal exercise captures the direct, indirect and in- These categories help us classify the literature relevant to our em- duced effects on several sectors of the economy, due to the additional pirical exercise (Table A1 in the Technical Appendix). Most early stu- public expenditure in construction. Specifically: direct effects concern dies dealt with impact appraisals, assessing the effects of positive and the production expansion of the construction industry and of its sup- negative externalities on real estate prices. HPM was then used to assess pliers; indirect effects regard the suppliers' suppliers; induced effects the value of material and immaterial assets engendering these ex- derive from the wage expenditure generated by the two previous ef- ternalities. More recently, this methodology has been used to ex ante fects. In order to capture these effects, the Leontief-Keynes multipliers assess the collective benefits induced by public intervention, generating of the “construction” industry in the Lombardy region are used. urban externalities (Camagni & Capello, 2006). Our results suggest that the collective benefits generated by the The first category includes works discussing environmental ex- public scheme are larger than the expected costs. Results are stable ternalities. Ridker and Henning (1967) estimates the effect of variations even after performing several robustness checks, and support the eco- in air pollution on property values for single family dwelling units in St. nomic feasibility of the project. Louis; this prompted a wave of studies dealing with appraising air To the best of our knowledge, this is the first paper to bring together pollution. Noise pollution has also been widely analysed; studies focus these two assessment methodologies. This represents a particular on different sources of pollution, ranging from airports and highway to stronghold of our analyses. In fact, while the HPM captures mostly urban traffic pollution. Other studies also deal with the effects of water demand-driven effects, since it translates the higher WTP for the im- quality and presence of toxic waste on real estate markets. proved urban environment on the consumer side into marginal price The second group of works focuses on the presence of public goods. increases, the I-O analysis allows us to measure the additional income This includes studies on open spaces and general urban externalities. generated by the public expenditure associated to the implementation Urban amenities like green spaces and parks, as well as a view on the of this urban transformation. The analysis of multiplier effects by means waterfront, offer the opportunity to exploit the HPM in order to attri- of the regional I-O tables captured the net impulse caused on the re- bute an indirect value, and a similar logic underlies studies dealing with gional economy by the construction works, while the HPM-based ana- generalized accessibility. Many concern the assessment of another lyses represent the one-shot capitalisation of future utility increases powerful urban attractor, i.e. good public schools. Typical issues in engendered by the urban transformation in consumers' utility functions. planning theory, such as safety and mixed land use, have also been The two effects do not overlap to each other, but rather have to be inspected. considered as complementary. More recently, empirical work has focused on how urban quality of Thus, while clearly both methods encompass demand and supply life could act as a compensating asset for lower urban attractiveness in effects, when used together they allow a more effective breakdown of terms of labor market characteristics. Colombo, Michelangeli, and the positive effects produced by restoring the Navigli. Stanca (2014), comparing quality of life across Italian province capitals, The paper is structured in six sections. After this introduction, a estimates this compensating differential for local amenities: the re- review of international research works presenting similarities w.r.t. the presentative household is found to be willing to pay about one quarter urban transformation analysed in this paper is presented (Section 2). of its average annual income in order to live in the city with the best The methodology for the empirical analysis is showed in Section 3, amenity bundle. while the data set collected for carrying out the appraisal is briefly Both the first and the second block of studies deal with ways of described in Section 45. Section presents the econometric results; economically assessing quality of life. While the germane literature on conclusions, policy recommendations and future research question ap- subjective quality of life (Lenzi & Perucca, 2016; Morrison, 2011) en- pear in Section 6. joyed vast academic success over the last few years, the HPM allows a more comprehensive and objective evaluation of the perceived higher quality of life induced by environmental quality and urban amenities. 2. Literature review Therefore, it provides a powerful toolbox with which urban transfor- mations such as restoring an urban canal can be appraised. 2.1. Empirical literature on the HPM The HPM has also been employed in order to assess urban trans- formations. While some provide ex-post assessments using house prices ff The HPM aims at disentangling the implicit value of the di erent as indicator,4 in this paper we follow Camagni and Capello (2006), features characterizing composite goods, capitalised in the good's

3 With the term “commercial units” we refer to shops and café-restaurants; no office 4 These studies have not been included in our literature review because of their mainly units have been included. descriptive nature, and the lack of a corresponding HPM-based econometric evidence.

12