Externalities and House Prices: A Stated Preferences Approach

Abstract

Objective: In the article, we address the nexus between neighbourhood externalities and house prices using stated preference data. The impact of neighbourhood amenities generating positive externalities and disamenities generating negative externalities on property prices has been studied since the 1970s. Most of the studies to date applied the hedonic methodology and assumed that the effect is homogeneous. The article aims to address the potential heterogeneity of housebuyers’ preferences.

Research Design & Methods: The article uses logistic regression models on stated preference data regarding the sensitivity to three spatial amenities (public transit, urban green area, and retail and services) and three spatial disamenities (railway line, noisy road, petrol station). The dataset comes from six editions of the survey on housing demand and preferences in Krakow conducted annually from 2012 to 2017.

Findings: Empirical results show the relation between household lifecycle and household wealth and willingness-to-pay for spatial amenities and willingness-to-accept spatial disamenities. We did not observe the difference in preferences dependent on the purchase motive.

Implications & Recommendations: The results can be interesting for planners and policymakers, but also in the business environment in case of residential development.

Contribution & Value Added: The article fills the gap in the economic literature on factors affecting housebuyers’ sensitivity to certain positive and negative externalities that manifest in stated willingness-to-pay and willingness-to-accept.

Keywords

externalities, house price, hedonic, stated preferences

Author Biography

Michał Głuszak

PhD in Economics.

Assistant Professor at the Cracow University of Economics, Faculty of Economics and International Relations, Department of Real Estate and Investment Economics.

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