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|a Housing neighborhoods, in the context of urban economics can be viewed as a nexus of contracts that assign property rights over private and shared resources, and over various neighborhood attributes. However, previous studies have indicated that the fragile assignment of property rights in the conventional open neighborhood can contribute to the neighborhood instability over time. As a result, through the process of institutional change, new and more efficient institutional forms will gradually emerge. While, a vast amount of studies suggested neighborhood privatization as a possible solution to the problem of instability with assignment of property rights, it appears that not all neighborhoods are able to transform under the existing neighborhood conventions and laws. Thus, there is a crucial need to study and consider other forms of institutional innovation that can resolve those problems. Therefore, this research proposes a theoretical foundation based on property rights and new institutional economics to initiate the analysis of the transformation of physical design and institutional arrangement in urban neighborhood development in Malaysia. This research takes advantage of the institutional transformation in Malaysia over the year 1960-2010. It is noticed that some conventional open neighborhood can be reinforced into guarded neighborhood and enjoy the benefits similar to that of gated community, while the others cannot. Therefore, this research aims to identify the dynamic interrelationship patterns between neighborhood physical design and institutional arrangement that contribute to maximize housing price benefits and strengthen the conventional open neighborhood institution in Malaysia. The research begins by examining the unique features of the causes, process and outcome of institutional change through extensive literature reviews, interviews, and field observations. Secondly, a conceptual framework has been developed based on the identified unique features of institutional and physical design characteristics. Third, the framework is used to evaluate the effect of institutional change on housing price and appraise those relationships through critical comparisons of two neighborhoods. This research found a unique anomaly when one developer has developed two identical neighborhoods in the same township, but under different land titles. The gated community is developed under the strata title, while the guarded neighborhood developed under the individual title. These differences generated an exogenous allocation of property rights across the neighborhood, enabling researchers to measure their effect on housing price. This research identified the dynamic interrelationship that has taken place in two dimensions. First, in order to avoid further neighborhood conflicts, both physical and institutional designs of conventional open neighborhood (CON) 'reinforce' into guarded neighborhood (GN) and 'accompanied' each other during the transformation process. Second, learning from the previous obstacles, the physical and institutional designs of the emerging new guarded neighborhood (GN) 'adopted' the same physical and institutional designs similar to that of gated community (GC). Finally, this research recommends a conceptual framework that demonstrate the relationship between the neighborhood physical design and institutional arrangement of CON, GN and GC, and provides urban policy-makers with an objective reference to strengthen the conventional open neighborhood institution. The conceptual framework may also be a strategic tool in understanding the local institutional change in other cities and a foundation to provide research directions for future studies in this area.
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