House renovations are regarded as advantageous due to their potential to increase property value. Despite this benefit, assessing the effects of renovation on house prices is complicated because of the relatively small share of renovated houses in the market. This study aims to address this challenge by using a causal inference approach to analyze the relationship between renovations and property prices.
Propensity score matching was used to identify non-renovated houses that are comparable to renovated properties, enabling a more precise evaluation of renovation effects. In addition, a generalized additive model was used to examine the relationship between renovation scope and house prices.
The results indicate that renovation leads to a price increase of KRW 44.12m in Gyeonggi province and KRW 10.56m in Chungnam province. At relatively low levels of renovation, renovation activity has only a limited impact on prices. As renovation scope increases, price appreciation becomes more pronounced and reaches a peak at an intermediate level of renovation. Beyond this point, further increases in renovation scope are associated with declining prices, indicating diminishing returns at higher levels of renovation intensity.
This study reveals that renovation effects are context-dependent, especially regarding renovation intensity and identifies the renovation scope under which renovation investments are capitalized into house prices.
