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49(5) 961–978, April 2012 The Price of Victory: The Impact of the Olympic Games on Residential Real Estate Markets Constantine Kontokosta [Paper first received, October 2010; in final form, April 2011] Abstract The Olympic Games have come to be viewed as an unprecedented opportunity to leverage a short-term event into a long-term positive legacy. Although the Olympics are assumed to yield economic benefits, there has been no rigorous analysis of the impact of hosting on residential real estate markets. Utilising a substantial dataset for six host cities and comparable cities between 1984 and 2000, this paper employs an adjusted interrupted time-series approach to estimate the house price impacts of hosting the Olympic Games. The results suggest that the Olympics are not a ‘one size fits all’ economic development strategy and that potential outcomes are dependent on a number of factors, including the co-ordination of planning and Olympicrelated development and the relative scale of the total Olympic investment. 1. Introduction The term ‘mega event’ was first used by Ritchie and Yangzhou (1987, p. 20) to describe a major, limited-duration event that served to ‘‘enhance the awareness, appeal, and profitability of a tourism destination in the short and/or long terms’’. By this definition, the Olympic Games have become the pinnacle of mega events. In the 115 years of their modern existence, the Games have evolved from an international competition of athletes to an international competition of cities and nation-states. The Olympics have come to be viewed as a potential catalyst for urban transformation and the impetus for social, economic and political change. Specific motivations for hosting an Olympic Games are directly linked to the political, social and economic reorganisations brought on by the effects of globalisation. Cities view the Games as an opportunity to make a political statement, create a lasting marketing image, encourage foreign investment, stimulate tourism, Constantine Kontokosta is in the Schack Institute of Real Estate, New York University, 11 West 42nd Street, Room 418, New York, 10036, USA. E-mail: [email protected]. 0042-0980 Print/1360-063X Online Ó 2011 Urban Studies Journal Limited DOI: 10.1177/0042098011411952 Downloaded from usj.sagepub.com at PENNSYLVANIA STATE UNIV on September 12, 2016 962 CONSTANTINE KONTOKOSTA inspire social reforms, provide infrastructure improvements and spur economic activity (Altshuler and Luberoff, 2003; Castells, 2003; Roche, 1992). The Los Angeles Games in 1984, in particular, marked a dramatic shift in the attitudes of cities and nations towards the Olympics. The financial success of the event provided the incentive for cities to host the Games as part of a strategy for economic and physical development and not just for visibility, prestige or symbolism (Shoval, 2002). Today, four key objectives tend to motivate cities to host the event: the desire to gain recognition and acceptance at the international level; the desire to accelerate the economic transformation; the expectation of social and political reform under a unifying common goal; and the development of social, physical and economic infrastructure necessary for further growth. There have been numerous attempts to assess the impacts and effects of the Olympic Games on the host city and nation (Brunet, 1995; French and Disher 1997; Hiller, 1990; Hotchkiss et al., 2003; Preuss, 2004). Private and scholarly studies have been used to justify both sides of the argument whether to bid for such an event. However, there have been few efforts to quantify the effects of hosting the Olympics on house prices. The omission of a rigorous examination of real estate price effects is a critical shortcoming in the relevant literature, as residential real estate asset markets have become an increasingly important component of national and personal wealth (Bostic et al., 2009). Given the scale of housing markets, house prices can be a primary indicator in evaluating any economic development initiative (Baffoe-Bonnie, 1998). In the US as of 2006, residential real estate accounted for more than half of the nation’s fixed capital stock, one-third of gross private domestic investment and about one-seventh of all personal consumption expenditures. Residential real estate prices also have significant implications for the distribution of costs and benefits among city residents— particularly with respect to housing affordability—and the level of tax revenues generated to support the provision of city services. The economic implications of shifts in house prices indicate the important role of housing in industrialised societies. Housing satisfies many basic needs and housing conditions are often used as a measure of economic development and prosperity. Hence, governments have long intervened in housing markets to improve conditions and expand homeownership (Megbolugbe and Linneman, 1993). For most households, housing represents their largest asset and, through mortgage debt, typically their most sizeable liability. House price movements affect households’ net wealth and their capacity to borrow and spend, which translates to broader macroeconomic impacts. This paper employs an adjusted interrupted time-series approach to explore the impact of the Olympic Games on residential real estate prices in six host cities between 1984 and 2000. The next section presents the existing literature related to the economic impacts of hosting mega events, followed by a discussion of the theoretical expectations of the effects of hosting the Olympics on real estate prices. The paper continues with a detailed description of the study area, data sources and methodology. A discussion of the results of the analysis follows, concluding with implications and closing remarks. 2. Literature Review The potential economic impact of the Olympic Games has been examined with great interest over the past 20 years. Beginning with the 1984 Los Angeles Games, the Olympics (and sports events, in Downloaded from usj.sagepub.com at PENNSYLVANIA STATE UNIV on September 12, 2016 THE OLYMPIC GAMES AND HOUSE PRICES general) have been viewed as a viable strategy for the economic development of a city in the context of an international competition for investment (Baade, 2008). The Olympics are expected to bring tourists, investment and attention to the host city and, in certain cases, the host nation. Yet are these expectations justified? The economic and cost–benefit analyses produced by private and government agencies to evaluate possible impacts have often been cited for their thinly veiled subjectivity (Matheson, 2002). The studies themselves can become a politically expedient means to validate the claims made by growth regimes eager to pursue a local development agenda (Burbank et al., 2001). Scholarly ex post studies of the impact of hosting the Olympics indicate mixed or insignificant economic outcomes, while ex ante studies, subject to the weaknesses already identified, reveal expectations for long-term economic benefits (French and Disher, 1997; Kasimati, 2003). Particular areas of concern in these economic impact studies revolve around the omission of opportunity cost analyses and the limited post-Olympic period data, which often constrain a full exploration of ‘legacy’ effects. 2.1 Empirical Evidence In general, studies that analyse the impacts of sporting events and stadium construction, find that their economic impact is negligible. Baade and Dye (1988) used regression analysis to examine the relationship of stadium construction and the addition of a sports team in a city to area income growth. Their results indicate five negative and only two positive statistically significant correlations out of nine cities studied. Employment growth has been another subject of examination, as job creation is often said to be one of the critical 963 benefits of event- and stadium-centric economic development strategies (Baade and Matheson, 2000; Burton, 2003; Noll and Zimbalist, 1997). The results of studies on employment have been mixed. Baade and Matheson (2000) found that hosting the Super Bowl produced only 500 jobs, onetenth of the jobs predicted by the National Football League. On the other hand, a study of the impact of the 1996 Atlanta Olympic Games on employment indicated a 17 per cent increase in total employment pre- versus post-event in counties which contained an Olympic venue relative to counties which did not (Hotchkiss et al., 2003). However, the analysis includes several elements which raise concerns about the validity of its results; these possible sources of error and appropriate corrections will be discussed later in this paper. Surprisingly limited attention has been given to the effect of mega events on real estate, particularly house prices. House prices and residential real estate markets can be a powerful primary indicator of economic development and quality-of-life initiatives (Baffoe-Bonnie, 1998). With respect to the Olympics, the expected economic benefits (such as employment growth, increased investment and stronger retail sales) should, in turn, produce a noticeable shift in area house price levels and trends through the capitalisation of such positive amenities as the creation of employment opportunities, higher-quality infrastructure and improved quality of life. To examine the potential effect, the determinants of real house price appreciation can be divided in two groups: one that explains equilibrium price and one that explains deviations from the equilibrium (Abraham and Hendershott, 1996). Determinants of equilibrium house price level have been shown to include employment level, real income, construction activity, population and interest rates (Baffoe-Bonnie, 1998). In Downloaded from usj.sagepub.com at PENNSYLVANIA STATE UNIV on September 12, 2016 964 CONSTANTINE KONTOKOSTA evaluating the Olympic Games with respect to house prices, one must examine both components as it can be assumed, given anticipated changes in economic variables, that the mega event will result in a shift in the equilibrium price level and a temporary shock to prices raising them above their equilibrium value. Despite the importance of housing markets in the general economy, there have been only a few empirical studies of the impact of mega events or Olympic Games on residential real estate markets. For example, Preuss (2004, pp. 263–264) devotes only two pages of his 332-page book to real estate, discussing possible impacts on market rents. Much of the literature has focused on the house price impacts of stadium construction and new sports franchises. In a study conducted on the impact of National Football League franchises on rents in cities, Carlino and Coulson (2004) find that rents in metropolitan areas with franchises are about 4 per cent higher than those without franchises. Using a difference-in-difference approach, Tu (2005) finds a price premium for houses proximate to the FedEx Field stadium in Washington, DC. These results suggest a possible positive impact of sport-related infrastructure on house prices. Two studies have attempted to analyse the impact of the Olympic Games specifically on real estate markets. Both studies were conducted by private institutions and both are limited by the scope of their methods. The first, a cursory analysis of house price data, was completed by HBOS plc, the result of the merger of the Halifax plc and the Bank of Scotland, in 2004. The report examines house prices in the five-year period prior to each of the 1992 Barcelona, 1996 Atlanta, 2000 Sydney and 2004 Athens Olympic Games. As part of a discussion of the possible impacts of the London 2012 bid, the report claims that house prices in Olympic host cities increased, on average, by 19 per cent more than in the host nation. These results are weak for several reasons. First, the comparison between host city and host nation does not provide an adequate control to determine possible causation. It is possible that growth in these cities outpaced national growth simply as function of their respective size and scale within the host nation. It would be more appropriate to use comparable cities in evaluating any price differentials. Secondly, the report looks only at a period five years preceding the event, ignoring previous trends and post-event outcomes and provides no satisfactory explanation of why this period was chosen. Thirdly, there is no consideration of the effect of other explanatory variables on the price movements observed. The report attributes any price differential between the host city and host nation to the Olympic Games; there is no indication that any controls were used to account for differences in specific economic and demographic conditions between city and nation. The second study was completed by Jones Lang LaSalle, a real estate and money management firm, in 2001 (Plumb and McKay, 2001). This study provides a more detailed review of potential Olympic impacts and their effect on real estate markets. However, there is limited discussion of actual price movements in the residential sector, with more emphasis placed on office and hotel markets. Additionally, like the HBOS report, there was no quantitative statistical analysis performed to arrive at their respective conclusions. Results were reached by reviewing previous studies and by a perfunctory examination of house price data. 3. Theoretical Expectations General equilibrium theory suggests that any increase in demand, holding supply constant, will result in an increase in prices. Downloaded from usj.sagepub.com at PENNSYLVANIA STATE UNIV on September 12, 2016 THE OLYMPIC GAMES AND HOUSE PRICES It is expected that hosting the Olympics will result in greater demand for real estate in the host city. One question is whether supply increases sufficiently to balance the potential increase in demand. Therefore, the Olympics may result in increased real estate prices for two main reasons. First, infrastructure and transport projects will result in decreased production costs for firms, which will lead to bidding up the price of land to access these positive externalities. If more firms locate within the host city, then demand for housing should also increase. Secondly, positive marketing campaigns and improvements to quality-of-life amenities in the host city should create increased demand for housing (Rappaport, 2009), as should the demand generated by the increased labour force that may be needed for Olympic-related projects. If these demand shocks occur, it is reasonable to expect the potential for a shift in both the absolute level and the rate of growth of house prices in the host city during the pre-Olympic investment and post-Olympic periods. In the investment period (identified as the four years preceding the event),1 Olympic-related projects and increased speculation may fuel growth by increasing demand faster than new supply. In the post-Olympic period, improvements to infrastructure and the built environment could result in an absolute (time-invariant) increase in house prices due to positive amenity effects. Similarly, positive legacy effects of marketing campaigns and political integration into world markets may result in a lasting increased rate of price appreciation, relative to what would have otherwise occurred. Two other possible price impacts are theoretically possible. From a social welfare perspective, prices may remain unchanged when government officials and pro-Olympic supporters are primarily concerned with residents’ welfare. In this case, the costs 965 associated with the event will only be increased to match the expected benefits to residents. On the other hand, prices may decrease for a number of reasons. First, if pro-Olympic supporters derive private benefits from backing the bid, resources may be committed to the Games beyond the expected value of residents’ benefits. For example, political boosters, such as Billy Payne in Atlanta and Dan Doctoroff in New York (during the failed 2012 bid), may have viewed the Olympics as a personal political challenge, one that would have resulted in the accrual of significant political capital if successful. Therefore, a push may be made to host the Games without a comprehensive strategy for integrating new development and selecting investments that will have long-term benefits. Secondly, if tax burdens increase to fund the Olympics, as was the case with the Montreal Olympics in 1976 and Athens in 2004, the capitalisation of that increased expense may result in decreased prices.2 Also, if new supply, fuelled by speculation and government-subsidised investment, outpaces demand, it would be expected that a decrease in residential real estate prices would result, at least in the short term or until demand increases to meet supply and absorb existing inventory. Finally, the ‘white elephant’ effect may occur if resources are misallocated to the Olympics and Olympic-related development, as opposed to other more socially and economically beneficial projects, resulting in real estate price declines relative to comparable cities that did not host the event and, perhaps, invested in projects that more closely matched long-term goals. 4. Study Area and Selection of Control Groups The study area for this analysis consists of a total of six host cities, including five Summer Games and one Winter Games, Downloaded from usj.sagepub.com at PENNSYLVANIA STATE UNIV on September 12, 2016 966 CONSTANTINE KONTOKOSTA held in a total of five different countries. The cities include: Los Angeles, US; Seoul, South Korea; Calgary, Canada; Barcelona, Spain; Atlanta, US; and Sydney, Australia. Olympic-related investment and GDP (or gross state product for the US cities) for each host city is summarised in Table 1. For each host city, non-host comparison cities were selected as a control group to create a counter-factual test for house price movements in similar cities which did not host the Games (shown in Table 2). Selection bias is a direct result of attempting to isolate the impact of an event that occurs in a specific location at a specific time. The question raised is if the impacted city (the host city in this case) is somehow fundamentally different from the nonimpacted (non-host) cities and, therefore, if this difference accounts for the selection of the impacted city for the specific intervention (Olympic Games). In the case of the Olympics, it is possible that the cities selected to host the Olympic Games are in some way fundamentally different from those not selected. More specifically, within a given nation, the cities that are able or encouraged to bid for the Games are typically the most developed and, generally, have at least a threshold level of necessary infrastructure to host the event. The International Olympic Committee, the organisation that selects the Olympic host cities, utilises a candidate city assessment decision matrix that assigns the greatest weights to infrastructure, accommodation and security, which obviously favours more established urban areas (International Olympic Committee, 2003). There are a number of methods for determining a suitable comparison group. One approach in the case of the Olympics would be to populate the control group with cities that lost the bid, but made it to the final selection round. This method would provide a control group that, based on the IOC evaluation of specific criteria, were capable, to varying degrees, of hosting the Games. The major weakness of this approach is that the final-round cities are always from different nations, making often unreliable crossnational comparisons necessary (Mondello and Rishe, 2004). Another challenge is that final-round candidate cities can possess widely divergent economic, political and social characteristics (as evidenced by the 2004 bid countries of Argentina, Sweden and South Africa). The approach utilised in this analysis was to use matching techniques based on key economic and demographic indicator variables and pre-Olympic trends. While propensity score matching methods were not used due to limitations in the number of possible control cities, the control group cities were selected by comparing population, employment, income and house price trends prior to the Olympic event in the host and non-host cities. These variables have been shown to be highly correlated with housing demand (Abraham and Hendershott, 1996). The comparison cities were also selected based on qualitative measures of geographical proximity to the host city and existing levels of infrastructure. 4.1. Study Time-frame For the purposes of this study, data were collected and analysed for the period starting eight years prior to the event to eight years following the event. This analysis period captures both short- and long-term price effects and provides a sufficient number of data points to minimise potential coefficient errors associated with volatility in the data. The 16-year study period is divided into three distinct phases: the preOlympic period, the investment period (which includes the four years preceding the event and has been shown by Preuss (2004) and others to contain a vast majority of Olympic-related expenditures) and Downloaded from usj.sagepub.com at PENNSYLVANIA STATE UNIV on September 12, 2016 California Seoul Teukbyeolsi Alberta Catalonia Georgia New South Wales Los Angeles Seoul Calgary Barcelona Atlanta Sydney US South Korea Canada Spain US Australia Country 1984 1988 1988 1992 1996 2000 Olympic year Summer Summer Winter Summer Summer Summer Type 4 1 10 1 2 549.5 063.0 000.0 134.2 324.4 600.6 Total investment (US$millions) 801 300 714 735 229 388 403.0 915.7 067.0 795.0 685.0 043.0 Olympic year GDP/GSP (US$millions) 0.07 1.35 0.14 1.38 0.58 0.67 Investment as a percentage of GDP/GSP Note: GSP listed for US cities is the gross state product; for non-US cities it is national GDP. All figures in constant 2000 US$. Sources: Bureau of Economic Analysis, US Department of Commerce; Preuss (2004); Deutsche Bank Research; World Bank; Organisation for Economic Co-operation and Development; Olds (1998). State/Territory Olympic host Summary of Olympic cities, Olympic investment and gross domestic product City Table 1. THE OLYMPIC GAMES AND HOUSE PRICES Downloaded from usj.sagepub.com at PENNSYLVANIA STATE UNIV on September 12, 2016 967 968 CONSTANTINE KONTOKOSTA Table 2. Control group cities Olympic year City MSA/Province 1984 Los Angeles (host) San Francisco San Diego Sacramento Los Angeles–Long Beach–Santa Ana, CA San Francisco–Oakland–Fremont, CA San Diego–Carlsbad–San Marcos, CA Sacramento–Arden–Arcade–Roseville, CA 1988 Seoul (host) Busan Gwanju Inchon Soul t’ŭkpyŏlsi Pusan gwangyŏksi Kwangju gwangyŏksi Inch’ŏn gwangyŏksi 1988 Calgary (host) Edmonton Toronto Montreal Alberta Alberta Ontario Quebec 1992 Barcelona (host) Madrid Seville Catalonia Comunidad Autónoma de Madrid Andalusia 1996 Atlanta (host) Charleston Charlotte Memphis Miami Nashville New Orleans Atlanta–Sandy Springs–Marietta, GA Charleston–North Charleston, SC Charlotte–Gastonia–Concord, NC–SC Memphis, TN–MS–AR Miami–Fort Lauderdale–Miami Beach, FL Nashville–Davidson–Murfreesboro, TN New Orleans–Metairie–Kenner, LA 2000 Sydney (host) Melbourne Brisbane Canberra New South Wales Victoria Queensland Australian Capital Territory the post-Olympic period (which extends for eight years after the Games). The array of locales included in this study required an intensive search of data sources for useable, relevant statistics. In many instances, data collected was converted to a comparable uniform standard. In general, the data used were collected from official national, regional and metropolitan statistical agencies. It should be noted this paper does not attempt to make direct comparisons across countries and time. Given the numerous challenges in analysing data over time in a specific geographical area, the added difficulties of comparing across distinct independent regions would create an unacceptable level of uncertainty in the results. It is assumed that the analysis of like data over the same time-period will eliminate much of the potential error described earlier, as any changes in collection or definition will be equally reflected in data for all cities included within specific iterations of the model. An abridged description of data sources for each Olympic (and control group) city is provided next. Los Angeles, 1984. The house price index used in the study is the Conventional Mortgage Home Price Index created by the Downloaded from usj.sagepub.com at PENNSYLVANIA STATE UNIV on September 12, 2016 THE OLYMPIC GAMES AND HOUSE PRICES Federal Housing Finance Agency (formerly the Office of Federal Housing Enterprise Oversight). House price data for the index are collected by repeat-sale mortgages purchased by Fannie Mae and Freddie Mac in the secondary mortgage market (Stephens et al., 1996). Statistics of population, employment, gross state product (GSP) and per capita personal income were found at the Bureau of Economic Analysis of the US Department of Commerce. Seoul, 1988. For purposes of establishing real estate price levels, the only available data for the time-period required were those of the floating rate of land. Published by the Republic of Korea National Statistical Office, the percentage change in land value was converted to an index for use in this study. Although these data do not represent house prices, the statistics are still suitable for estimating the impact of the Olympic Games. Population, building approval and city revenue and expenditure statistics were also retrieved from the National Statistical Office. Calgary, 1988. Data from the University of British Columbia Centre for Urban Economics and Real Estate (CUER) were used for house prices, mortgage rates and rates of inflation. Income, population and employment statistics were found in the official Statistics Canada CANSIM database. Barcelona, 1992. House price information for Barcelona is from the Departament Estadı́stica of the Ajuntament de Barcelona. House price, employment and construction-starts data were found at the Instituto Nacional de Estadı́stica (INE). Population data were retrieved at the Instituto de Estadı́stica de Catalũna. Atlanta, 1996. Statistics used in the analysis of the Atlanta Games and its comparable 969 cities were compiled from the same sources as those for the Los Angeles Games. Sydney, 2000. House price index, employment, population and income data were retrieved from the Australian Bureau of Statistics, the official statistical office of Australia. 5. Methodology There are numerous challenges to the precise measurement of the impacts of place-based economic development initiatives such as the Olympic Games. One of the difficulties in analysing the Olympics is that, while the event occurs at a specific time, investment and residual effects can begin long before and continue for years afterwards. Further challenges in this type of analysis include effects that: occur after a significant lag; are difficult to quantify involving shifts in attitude or expectations; vary across geographical regions that do not correspond with statistical boundaries; are so far-reaching as to cause indirect impacts in areas designated in the analysis as controls; and, may interact with other events in such a way as to minimise their singular cause (Galster et al., 2004). With any attempt to determine the impact of a specific intervention, the most fundamental challenge is to establish the counter-factual scenario. This requires establishing a baseline case of what might have occurred ‘but for’ the intervention (Peters and Fisher, 2003). Difference-in-difference estimation has become a useful quasi-experimental research design for evaluating the impact of public policies and economic development strategies on a number of critical indicators (Meyer, 1995). The benefits of differencein-difference estimation are its relatively straightforward design and its potential to avoid many of the endogeneity problems Downloaded from usj.sagepub.com at PENNSYLVANIA STATE UNIV on September 12, 2016 970 CONSTANTINE KONTOKOSTA that typically appear when making comparisons between heterogeneous groups (Bertrand et al., 2004). Long used in comparative political economy studies, recent papers have used the procedure to estimate the price effects of certain discrete housing policies (Galster et al., 1999; Galster et al., 2004; Voicu and Been, 2008; Hotchkiss et al., 2003; Slaughter, 2001; Card and Krueger, 1994). One paper that specifically examines the impacts of the Olympic Games focuses on employment and wage effects rather than prices (Hotchkiss et al., 2003). The adjusted interrupted time-series (AITS) approach used in this paper is a variant of difference-in-difference estimation. This model consists of identifying a specific intervention or treatment and then comparing differences in outcomes in both level and trend pre-intervention and postintervention for groups affected by the treatment against those that are unaffected (Galster et al., 2004). Building on previous econometric studies, the AITS Olympic impact model is estimated using ordinary least squares regression techniques with panel-corrected standard errors (as suggested by Beck and Katz, 1995; Beck, 2001). Panel-corrected standard errors provide more robust estimates where cross-section heteroscedasticity is present. A Prais– Winsten transformation is used to estimate the equation parameters in the presence of serial correlation (Prais and Winsten, 1954). In a recent study of papers employing a difference-in-difference methodology, Bertrand and colleagues (2004) find that, of 92 papers, 65 have a potential serial correlation problem, but only five make any attempt to correct for this source of error. The Prais–Winsten transformation corrects for serial correlation without dropping the first observation, as with the common Cochrane–Orcutt procedure for first-order autoregressive processes. The complete log-linear model specification combines the variables for analysing absolute changes in house prices and those for analysing changes in the rate of growth of house prices both during the investment and post-Olympic periods ln HPIit = a + b1 X1 + b2 X2 + b3 OLYt + b4 INVOLYt + b5 POSTOLYt + b6 TREND + b7 TROLYt + b8 ð1Þ TRINVOLYt + b9 TRPOSTOLYt + e The dependent variable is the natural log of the house price index. A semi-logarithmic transformation provides for non-linearity of the data and allows for coefficient results in the form of percentage change of the dependent variable. Alpha (a) is the constant; X1 consists of quarterly dummy variables; and X2 is a series of fixed effects for each city. OLY is a dummy variable equal to 1 if the city hosted the Olympics at any time and zero otherwise. INVOLY is equal to 1 for the host city during the investment period and 0 otherwise; POSTOLYt is equal to 1 for the host after the Olympic year and 0 otherwise; TREND is a time trend incremented by 1 for each period beginning with the first timeperiod of the data; TRINVOLYt is the trend associated with the host city during the investment period and equal to 0 otherwise; TRPOSTOLYt is a time-trend variable incremented by 1 for each time-period after the Olympic year for the host city, and equal to 0 otherwise; and e is the error term. The coefficients of interest in the model are b4, b5, b8 and b9, where b4 represents the change in house price level in the host city relative to the comparable cities during the investment period versus prior and b5 during the post-Olympic period relative to prior. The coefficient b8 indicates the Downloaded from usj.sagepub.com at PENNSYLVANIA STATE UNIV on September 12, 2016 THE OLYMPIC GAMES AND HOUSE PRICES change in the rate of growth of house prices in the host city in comparison with the control group during the investment period relative to prior, and b9 during the post-Olympic period relative to prior. 6. Results: Summary and City-specific Analysis The results of the analysis (as shown in Table 3) indicate that the Olympic Games have a varied impact on house prices in the host city. Of the six Olympic cities studied, Barcelona and Sydney were shown to have statistically significant positive impacts, Los Angeles, Calgary and Atlanta had results that indicate negative effects and Seoul resulted in no statistically significant impact. Figure 1 shows the ratio of house prices from the base year in the six Olympic cities, using the year eight years prior to the Games (t-8) as the base year. The cities included in this analysis can be divided into two broad categories based on the motivation for hosting and the level resources allocated to the event. The first group, which was motivated by regional competitiveness, experienced few or negative price impacts from hosting. These cities viewed the Olympics as an opportunity to upgrade urban infrastructure and establish or re-establish their respective position among other cities in the region and nation. From the study group, Los Angeles, Atlanta and Calgary can be classified as being in this regional competitiveness group, given the maturity of their housing markets, the city’s relative position within the primary cities of their respective country and the scale of the urban transformation and investment associated with the Olympics. The second category, which focused on global emergence, includes Barcelona, Seoul and Sydney. These cities, while established as primary economic hubs within 971 their respective countries, attempted to use the Olympic event as an opportunity to increase the standing of the city within the global marketplace of tourists, investors and corporations (Mannheim, 1992). Barcelona allocated substantial capital to implementing its urban planning scheme, which was designed to create the necessary infrastructure to accommodate and encourage foreign investment and visitors. Similarly, the marketing campaign for the Sydney 2000 Games was predicated on selling the nation, not just the city, to the world (Waitt, 1999). Cities that fall into this global emergence category require both substantive urban plans to guide new development efficiently and significant investment in new infrastructure to create the necessary capacity to engage and compete with other global cities. The next section provides a detailed analysis of the city-specific impacts and the political, economic and social context for the Games in Atlanta, Georgia, US in 1996 and Sydney, Australia, in 2000. These cities provide a particularly useful examination of the specific factors influencing the range of observed outcomes. 6.1 City-specific Results and Discussion Atlanta, US, 1996. Atlanta had long aspired to recognition beyond the regional boundaries of the south-eastern US. Atlanta positioned itself and its Olympic bid to achieve ‘international’ status for the city as a global business and tourist destination (Whitelegg, 2000). Central to its strategy was the effective use of marketing to create a distinct urban image that could be relayed to the millions of visitors and spectators of the Games. In September 1990, Atlanta was awarded the bid for the 1996 Summer Games, largely due to its existing sports infrastructure, numerous Downloaded from usj.sagepub.com at PENNSYLVANIA STATE UNIV on September 12, 2016 972 CONSTANTINE KONTOKOSTA Table 3. Impacts of the Olympic Games on house prices: results of difference-in-difference (AITS) estimation Olympic host city and year OLY INVOLY POSTOLY TROLY TRINVOLY TRPOSTOLY R 2 1984 (n = 272) Los Angeles 1988 (n = 76) Seoul 1988 (n = 272) Calgary1 1992 (n = 39) Barcelona 1996 (n = 749) Atlanta 2000 (n = 272) Sydney 0.4573** 20.0267 20.1928*** 0.0076*** 20.0097** 20.0055** 20.7939 0.1799** 20.0664* 0.1901 20.0096* 0.0185 0.0034 0.1872* 0.0970** 20.0033 20.0987** 20.0009 20.0039* 20.0016 0.0984 0.0138 0.1341** 20.0001 0.0074** 0.0023 0.978 20.1023 20.0171 20.0259 0.953 0.973 20.0966 0.0133 0.0277* 0.976 0.971 0.991 a Calgary hosted the 1988 Winter Olympics. Notes: The analyses for Seoul and Barcelona utilise annual data; all others are quarterly. * coefficient significant at the 90 per cent confidence level; ** coefficient significant at the 95 per cent confidence level; *** coefficient significant at the 99 per cent confidence level. Figure 1. Ratio of house prices in Olympic cities for the Olympic analysis period. hotel accommodations and international accessibility (French and Disher, 1997). The financing model for the event included private funding for development and an entirely self-supporting operating scheme. The results of the AITS analysis indicate two statistically significant coefficients out of the four Olympic-related variables. Both are negative. The estimate for the POSTOLY variable indicates a -9.4 per cent change in price level after the Olympics in Atlanta Downloaded from usj.sagepub.com at PENNSYLVANIA STATE UNIV on September 12, 2016 THE OLYMPIC GAMES AND HOUSE PRICES relative to the control group. During the investment period, house prices in Atlanta experienced a rate of price decline of 0.4 per cent per quarter relative to the control group. In the post-Olympic period, both employment growth and income growth in Atlanta slowed relative to the control group, indicating that the control group cities, on average, experienced faster rates of economic growth. Based on these results, it appears that the $2.2 billon (constant 2000 dollars) of Olympic-related investment was misallocated to projects that did not enhance the long-term competitiveness of Atlanta. The negative impact of the Olympics on house prices in Atlanta reflects the underlying discord that pervaded the city with respect to hosting the Games. The powers behind the economic and civic boosterism in Atlanta have been well-documented (see Stone, 2001; Hunter, 1980). Governing coalitions of business and political leaders created a ‘regime politics’ of pro-growth actors (Stone, 2001). Although initially reluctant to the idea of hosting the Olympics, Atlanta’s élite were persuaded by the persistent efforts of a local entrepreneur, Billy Payne (Burbank et al., 2001). Opposition continued from local residents concerned about the location and scale of Olympic development. Local community groups were poorly organised and limited to countering proposed projects on an ad hoc basis. The success of these opposition groups, however, was largely determined by their socioeconomic composition and the level of support for a specific development by the governing élites. For example, the Blackburn Park tennis centre was quietly relocated from the affluent, predominantly White suburb of Dunwoody when residents opposed the project on the basis of traffic congestion and effect on neighbourhood character. Conversely, resistance to the Olympic stadium3 was formed from the 973 majority Black, low-income communities surrounding the proposed site. Despite sustained opposition by four community organisations, decision-makers refused to concede many of the critical points of contention in the proposal, resulting in widespread displacement and relocation in the minority communities (Burbank et al., 2001). Sydney, New South Wales, Australia, 2000. The Sydney Games highlighted the potential of the Olympics as a tool for urban marketing. Promotion of the city and the event were handled by the Australian Tourist Commission (ATC) whose strategy included pre-event, duringevent and post-event marketing campaigns. The ATC aimed to add depth and dimension to both Sydney’s and Australia’s international image and to maximise long-term economic and social benefits through increased export earnings, employment, visitor arrivals and visitor dispersal throughout the country (Australian Tourist Commission, 2001; Waitt, 1999). In total, the Games cost US$4.79 billion (constant 2000 dollars) paid for using public and private funds, as well as the revenue from the Games themselves. Sydney benefited from a sizeable inventory of sporting facilities and a functional urban infrastructure, but still invested US$2.6 billion on urban development projects (Preuss, 2004). House prices in Australia had experienced minimal growth in the years leading up to the Olympics. Between 1990 and 1996 (start of the Olympic investment period), prices grew slowly in Sydney at approximately 2.5 per cent per year, compared with an average of 2.7 per cent per year among the study group. Beginning in 1998, however, prices began to soar as preparations for the Olympics approached their peak (Preuss, 2004). Melbourne led the Downloaded from usj.sagepub.com at PENNSYLVANIA STATE UNIV on September 12, 2016 974 CONSTANTINE KONTOKOSTA boom in 1997, followed by Sydney and then Canberra and Brisbane in 2000. After the Olympics, house prices in the four cities grew by an impressive 13.9 per cent, resulting in a 60 per cent increase in house prices in Sydney between 2000 and 2004. The AITS coefficient estimates indicate a statistically significant increase in prices in the post-Olympic period. In addition, there is a statistically significant positive change in the trend of house price in Sydney relative to the control group in the investment period. There is a 14.4 per cent increase in the time-invariant level of house prices in Sydney relative to the control group in the period following the Olympics. The trend variable for the investment period (TRINVOLY) also suggests a positive impact of 0.7 per cent in the growth rate of house prices per quarter, annualised to 2.8 per cent. The results suggest a substantial positive impact of the Olympics on Sydney house prices. 7. Policy Implications Over the past 20 years, the Olympic Games have come to be perceived as a viable strategy for the economic development of a city and even a nation. As the potential rewards of the event have grown, cities have become direct competitors in a global system that bypasses national boundaries (Gordon, 1999). The frenetic pace of the bidding war for the 2012 Summer Olympic Games, which included global cities such as New York, London and Paris, and continuing with the bids for the 2016 Games, accentuated the economic value attributed to hosting the event. However, the actual impacts of the Olympics, in economic terms, are mixed. This study found that, while the Olympics had the potential for a positive impact on residential real estate prices in the host city, it was by no means a universal conclusion. The outcomes were found to vary considerably, affected by the host city’s motivation for hosting (which influences planning and project funding allocations), its resources and its position in a regional and global hierarchy of cities. Broadly, cities were grouped into two categories based on these factors: regional competitiveness and global emergence. While the magnitude of the impact is significant and positive in two cases, the negative impacts observed in Los Angeles, Calgary and Atlanta (all cities in the regional competitiveness category) demand careful consideration of the opportunity cost of an economic development strategy predicated on the Olympic event. The Olympics require an immense amount of resources, both political and financial, to be hosted successfully. Understanding the house price effects of hosting provides a useful indicator for citylevel economic conditions and changes in trends. Given the substantial investment made by most host cities in urban development and infrastructure (a figure that continues to increase), knowledge of probable price effects offers a meaningful parameter for social and distributional concerns, tax revenue implications and overall economic impact. The results of the impact of the Olympics on residential real estate prices suggest several areas of concern. First, although positive results occurred in only two cases, increases in house prices can greatly exacerbate affordability problems for lowerincome residents and can spur processes of gentrification. Even short-term effects, such as during the investment period, can have significant and lasting impact on the most vulnerable city residents, as evidenced by resident displacement in Atlanta in 1996 and in Beijing in preparation for the 2008 Games (COHRE, 2007). While these effects are not captured in the city-level analysis presented here, localised price effects Downloaded from usj.sagepub.com at PENNSYLVANIA STATE UNIV on September 12, 2016 THE OLYMPIC GAMES AND HOUSE PRICES around Olympic-related infrastructure should be explored. Secondly, the opportunity cost of favouring Olympic-related projects may be substantial, and the negative outcomes discovered in this analysis suggest significant social and economic costs associated with a misallocation of resources. While the Olympics is often a catalyst to complete projects expeditiously that lacked funding or political support,4 the use of funds—particularly public funds—to develop event-specific infrastructure can result in ‘white elephants’ that serve little purpose in building competitive capacity for the host city after the Olympics. Last, Olympic-related investments and resultant price movements have substantial tax revenue implications, as most cities derive a majority of their operating revenue from real estate taxes. Conversely, when taxes are raised to pay down public debt floated to fund the Olympic-related development (the Montreal Games in 1976 is a widely used example), the increase may be capitalised into house prices, thus resulting in a substantial drag on the economy. 8. Conclusions It appears from the headlines and statements of Olympic proponents that the Games are often perceived as a ‘one-sizefits-all’ economic development tool. The results of this paper suggest that this is not the case. The outcomes for the various cities included in this study support the assertion that each city must appraise its own goals, objectives and capabilities before pursuing such a costly and resourceconsuming endeavour. Explanations for the difference in results can be found in variations in the level of Olympic-related investment, the source of funds and the tax burdens required to repay costs, the 975 scale of the planning effort and its integration into an existing planning framework, and the pre-Olympic political and economic standing of the host city and nation. While the Olympic Games can have a positive impact on the residential real estate market of the host city, which indicates a positive net economic effect, it has also been shown that the event can have a significant negative impact or an outcome that is not commensurate with the cost. Equally important is the potential for inequitable distributions of costs and benefits and the negative neighbourhood or communitylevel impacts that are possible. Given the substantial investment of capital and resources associated with the Games, and the significant proportion of funding (and political capital) typically secured from public sources, issues of equity and distributional justice become a visible and politically contentious public policy concern. A developing nation/city that hosts the event may be more susceptible to disregarding social justice in its pursuit of economic growth and a successful event. The deadlines and massive urban development plans associated with the Olympics create powerful pressures to complete projects on time. The international media attention on the host adds to these pressures by scrutinising each decision and highlighting negative events. While on the one hand the attention may serve to encourage decision-makers to be more inclusive and seek consensus, on the other hand it may further pressure time-constrained policy-makers to downplay opposing or alternative viewpoints. The varying degree of impact between cities adds additional support for a thorough, comprehensive analysis of existing economic, social and political conditions and a realistic appraisal of expected outcomes and alternative investments before submitting a bid to host the Olympics. Downloaded from usj.sagepub.com at PENNSYLVANIA STATE UNIV on September 12, 2016 976 CONSTANTINE KONTOKOSTA Notes 1. Over 90 per cent of Olympic-related investment, on average, occurs in the four years prior to the event (Preuss, 2004). 2. The 1976 Montreal Summer Olympics provides an example of the financial and economic risk associated with hosting the Games. Although the necessary institutions and, to some degree, expertise were in place, the financial failure of the event cost the city and province more than 10 times the original budget. 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