Building replacement – Assessing the economic threshold for demolition

The demolition and reconstruction of individual buildings or entire neighborhoods characterized by serious decay, as part of urban regeneration projects, are essential interventions for the development of cities in accordance with the principles of environmental, economic and social sustainability. However, such initiatives often come to a halt for lack of economic feasibility. This study, starting from the analysis of the dynamics of the market value of a property, separates the contributions made to this value by the built part and the land in order to define a threshold for demolition, i.e. when conditions make building replacement economically viable. The depreciation of the built part is generated by a multitude of factors, all related to the inevitable passage of time, which may influence the end of the service life of the building or its economic useful life. The economic useful life is, in turn, also conditioned by the phenomenon of urban rent (positive or negative), determined by external factors independent of the technological and physical characteristics of the building. Based on the logical interaction between these two phenomena – the depreciation of the built part and the urban rent – a relationship is defined that may suggest the potential threshold for demolition. In particular, the cases of absolute rent, generated autonomously by the building’s replacement process itself, and differential rent, which is instead determined by public intervention, are separately analyzed. Based on the logical interaction between these two phenomena – the depreciation of the built part and the urban rent – a relationship is defined that can suggest the potential threshold for demolition. Specifically, given the verification that there is economic feasibility only if there is positive rent, the cases of absolute rent, autonomously generated by the building replacement process itself, and differential rent, which arises in combination with the former and is determined by public intervention, are separately analyzed.