Climate Change and Investments for Urban Renovation: Assessing the Financial Sustainability with the Application of Fuzzy Logic Principles to Real Estate Appraisal

Climate change requires significant measures to adapt existing cities to new requirements; extensive urban renewal actions are therefore necessary. In order to be financially sustainable, such investments are mainly based on real estate and market operations, also at long term. The current valuation practice would require to resort to appraisal methods based on actual, historical market data, also known as Revealed Preference Methods (RPMs), which allow to derive the preferences expressed by the actions of market. Because of the instability, complexity and uncertainty of real estate markets as they are today, the results obtained with the application of standard RPMs are often not fully reliable. The most advanced and current solutions to the above problems mainly focus on possibilistic models, based on fuzzy logic. Such models can account for the uncertainty in the input data and single out some estimated values that are associated with a certain likelihood of occurring or, alternatively, detecting a range of possible values. Such models represent a support to operate always within the range of the RPMs. They are instrumental to improving the quality of the input data and to describe the level of uncertainty. The paper proposes the application of fuzzy logic in valuation methods, considering another type of uncertainty from the one considered through the probability theory. After the framework of the issue and a brief description of the principles of the fuzzy logic theory, some proposals, at international level, concerning the application of fuzzy logic to real estate appraisal techniques (Sales Comparison Approach, Discounted Cash Flow Analysis and Multiple Linear Regressions) are described, analysed and critically discussed.