Journal of European Real Estate Research
Examining the Spatial relationship between environmental
health factors and house prices: NO2 problem?
Journal:
Journal of European Real Estate Research
Manuscript ID
JERER-01-2018-0008.R1
Manuscript Type:
Research Paper
Keywords:
housing markets, environmental health factors, air quality, noise pollution,
Geographically weighted regression, Spatial Lag Model
Journal of European Real Estate Reserach
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Journal of European Real Estate Research
1
Examining the Spatial relationship between environmental health factors and house prices: NO
2
problem?
Abstract
Purpose: The impact of both air quality, noise and proximity to urban infrastructure can arguably
have an important impact on the quality of life. Environmental quality (the price of good health) has
become a central tenet for consumer choice in urban locales when deciding on a residential
neighbourhood. Unlike the market for most tangible goods, the market for environmental quality does
not yield an observable per unit price effect. As no explicit price exists for a unit of environmental
quality, this paper utilizes the housing market to derive its implicit price and test whether these
constituent elements of health and wellbeing are indeed capitalised into property prices and thus
implicitly priced in the market place.
Design: A considerable number of studies have used hedonic pricing models incorporating spatial
effects to assess the impact of air quality, noise and proximity to noise pollutants on property
market pricing. This study presents a spatial analysis of air quality and noise pollution and their
association with house prices, using 2,501 sale transactions for the period 2013. To assess the impact of
the pollutants, three different spatial modelling approaches are employed, namely, an OLS using spatial
dummies, a Geographically Weighted Regression and a Spatial Lag Model.
Findings: The findings suggest that air quality pollutants have an adverse impact on house prices which
fluctuates across the urban area. The analysis suggests that the noise level does matter, although this
varies significantly over the urban setting and varies by source.
Originality/value: Air quality and environmental noise pollution are important concerns for health
and wellbeing. Noise impact seems to depend not only on the noise intensity to which dwellings are
exposed but also on the nature of the noise source. This may suggest the presence of other
externalities that arouse social aversion. This research presents an original study utilising advanced
spatial modelling approaches. The research has value in further understanding the market impact of
environmental factors and in providing findings to support local air zone management strategies,
noise abatement and management strategies and is of value to the wider urban planning and public
health disciplines.
KEY WORDS: housing markets, environmental health factors, air quality, noise pollution, house prices,
GWR, SLM
Introduction
All locations experience an array of impacts from environmental factors, comprising both positive and
negative dis(amenity) effects. However, some environmental factors, in addition to their pot
ential to cause
nuisance or loss of amenity, can have profound implications for the health and wellbeing of individuals
living within affected areas. Existing research has tended to illustrate that prolonged exposure to poor air
and noise quality comprises an adverse impact upon health in society in a number of ways, ranging from
simple annoyance (Ouis, 2001; Ohrstrom et al., 2007; de Kluizenaar et al., 2013), sleep disturbance (Net,
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Journal of European Real Estate Research
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2004), increasing risk of stroke
1
(Sørensen et al., 2011), hypertension
1
(Jarup et al., 2008; Bodin et al.,
2009), myocardial infarction (Babisch et al., 2005), and neuro-degenerative conditions (Rückerl et al.,
2011; Chen et al., 2017). Indeed, in their recent study, Chen et al. (2017) found that residing adjacent to a
c
ongested road (within 50 metres) adversely affects cognition and the likelihood of higher incidence of
dementia of up to 7%, with 11% of cases of dementia linked to air pollution.
It is trite that humans are adversely affected by ex
pose to pollutants in ambient air. In response, the UK,
in common with all EU member states, has an extensive environmental protection regime which has
p
roduced substantial improvements in environmental quality over the last seventy years. Urban areas for
the most part, no longer suffer from sulphur dioxide and smog from coal burning which produced ver
y
visible pollution. Whilst various sources of visible air pollution have been largely
remediated, by the
implementation of clean air legislation and the uptake of the use of natural
gas for home heating and
energy generation, air pollution especially from road transport (nitrogen dioxide and particulate matter
(
PM
2.5
)) and energy production continues to have major health and quality of life impacts, particularly
exposure in urban settings. The increasingly problem of air quality
has been highly publicised in popular
media reports which showcase ongoing problems and challenges pertaining
to both air and traffic
pollution. Pertinently, across the UK, air pollution is estimated to contribute 40,000 deaths per annum.
Indeed, recent reports have highlighted that combined the effects of long-term exposure to nitrogen
dioxide (NO
2
) and a particulate matter (PM2.5) in the UK’s largest conurbation, London, is linked to
5,900 and 3,500 deaths respectively
2
. Indeed, a White paper issued by the London Assembly Health and
Environment Committee (2012)
3
indicates that up to 9% of deaths in London are caused by air-borne
man-made particles.
Under EU law, health based standards and objectives stipulate that
the average hourly level of NO
2
in the
air must not exceed 200 micrograms (per cubic metre) more than 18 times in a year
4
. Nonetheless,
research has shown that EU-set limits on key pollutants have been frequently breached over the last
decade and in large conurbations the stipulated EU annual air pollution limits have been breached in a
matter of days
5
(London AQN, 2017)
6
. This has been witnessed on the legal front with the High Court
ruling that existing approaches to tackle pollution are not sufficient and ordering urgent changes to
regulate and ‘clean’ London’s air. This has once again led to
calls for sharper policy responses and
solutions, with recommendations including the ‘phasing out’ of diesel vehicles, the creation of Ultra Low
Emission Zones. The Government response has been to commit to channeling more funding resources
into tackling air pollution in the UK of circa £875 million over the next five years
7
.
In the UK, air quality is monitored by both central and local government with a regulatory system of air
quality management and assessment setting air (environmental) quality standards and objectives for
specific pollutants (DEFRA, 2007:13). The Air Quality Standards Regulations set out the responsibilities
1 Traffic noise greater than 60dBA increases higher risk for stroke (Sørensen et al., 2011). Traffic noise [24-hour average] of 55
dBA @ a higher risk for hypertension (Bodin et al., 2009)
2
http://www.bbc.co.uk/news/uk-england-london-33536989.
3
London Assembly Health and Environment Committee (2012) Air Pollution in London, Issues Paper, December 2012.
4
http://ec.europa.eu/environment/air/quality/standards.htm
5
Annual air pollution limit breached on 19 occasions within a 5 day period for a south London road. At one point NO
2
levels
were nearly double the legal limit. Putney High Street, which was the first London road to exceed its legal limit last year, went on
to exceed the hourly limit more than 1,100 times in 2016.
6
http://www.londonair.org.uk/LondonAir/General/research.aspx.
7
https://tfl.gov.uk/info-for/media/press-releases/2017/june/mayor-launches-plan-to-improve-air-quality-on-the-tube
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of local authorities in relation to air quality management and require that air quality reviews be conducted
t
o assess the quality of air within local authority districts and that Air Quality Management Areas
(AQMA) be declared where it appears that standards or objectives are not being achieved. In locations
where the air quality objectives are not met, local authorities are required to produce an air quality action
plan setting out how the standards will be met within a specified period. Yet despite these policy
objectives and promises, in Northern Ireland, ambient air quality continues to pose detrimental effects on
health and quality of life. The Department of Environment Farming and Rural Affairs (DEFRA, 2016)
stated that recent evidence on the health impact of exposure to nitrogen dioxide has strengthened
s
ignificantly, with reports persistently showing health warnings as a consequence of high levels of air
pollution
8
. Indeed, evidence has been released directly linking Nitrogen Dioxide exposure to mortality
rates. Additionally, in light of the fact that many of the sources of Nitrogen Dioxide are also sources of
particulate matter (PM), the impact of exposure to particulate matter pollution (PM2.5) is estimated to
have an effect on mortality equivalent to nearly 29,000 deaths (DEFRA, 2016:7). As a consequence, there
are currently (as of 2017) 26 AQMA’s declared in Northern Ireland; 19 of which are for Nitrogen Dioxide
emissions from road traffic sources and the remainder principally for PM10 from domestic (solid fuel
burning) sources. As a result, four Air Quality Managements Areas have been declared in the Belfast area
in relation to Nitrogen Dioxide emissions from vehicles.
In a similar vein, whilst exposure to noise is inescapable and usually has limited impact on quality of life,
in certain instances it can be so intrusive as to cause significant adverse effects on health (McKay and
Murray, 2017). In a general sense, noise may be characterised as “environmental noise - noise from
transportation and industrial sources; and neighbourhood noise - noise arising from within the community
such as from entertainment premises, trade and business premises, construction noise and noise in the
street (DoE NI, 2014:3). Nonetheless, noise is also a material planning consideration and “the planning
system has a role to play in minimising the potential for adverse impact upon health and well-being
through noise, by means of its influence on the location, layout and design of new development and
consideration of the amenity impacts” (DoE NI, 2015:117). While nuisance legislation deals with noise
from specific sources, the Environmental Noise Directive 2002/49/EC provides the framework to identify
noise pollution levels and trigger the necessary action across the EU – generally implemented through the
Environmental Noise Regulations within the UK. In Northern Ireland, the Environmental Noise
Regulations 2006 (NI) which require a number of actions: namely the assessment of exposure to
environmental noise; the provision of information on environmental noise and its effects on the public;
preventing and reducing environmental noise and preserving environmental noise quality where it is
good. These assessments have necessitated the production of strategic noise maps identifying areas which
have roads with more than 3 million vehicle movements annually, railways with more than 30,000 train
passages annually, airports with more than 50,000 movements annually and urban areas with more than
100,000 inhabitants.
Arguably, the exposure to air and noise pollution remains a major cause of ill health and mortality within
the UK. Despite this acknowledgement, an important aspect of assessing the effectiveness of
environmental policies that address the improvement of environmental air and noise quality is obtaining a
quantitative measure of the economic value of any accrued benefits or negatives across geographic
8
https://www.irishnews.com/news/northernirelandnews/2016/11/25/news/air-pollution-health-warnings-in-belfast-and-derry-
801996/
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neighbourhoods (Freeman 2003). In the absence of an explicit market for clean air (quality), and noise
pollution, this paper empirically assesses whether these environmental amenities such as (perceived) good
air quality and reduced noise levels are capitalised into property prices.
There are a variety of spatial based modelling frame
works in existence for examining house prices and
housing markets. As discussed by Khalid (2015), a vast number of contemporary studies are
incorporating explicit consideration of spatial effects in the estimation of hedonic price functions. This
paper therefore examines three differing spatial methodologies to account for potential missing spatial
variables, spatial trends and spatial heterogeneity when considering the effect of environmental concerns
on house prices. We focus on three methods and consider some methodological is
sues associated with the
estimation of an implicit price for clean air and noise by including a number of parameters and distance
bands within the hedonic modelling frameworks. The rationale behind this approach is that, ceteris
paribus, houses located in areas with cleaner air or reduced noise will hav
e this benefit capitalized into
their value - reflected in a higher or lower sales price. Interestingly, if environmental factors such as air
and noise pollution, in addition to their recognised impacts on the health and wellbeing, also have an
association with the price of residential property across a range of exposure levels (natural consequence)
this perhaps illustrates a quadratic trade-off.
This is key for informing regional and local policy
as to the (dis)amenity effect of noise and air quality,
undoubtedly helping urban renewal and revitalisation strategies (intensification) and providing evidence
base for the cost of ‘good’ or ‘poor’ planning. The paper proceeds as follows, Section 2 reviews the
relevant literature related to house prices and the role of environmental quality – specifically air and noise
attributes within housing markets. This is followed by the data and methodology section with results and
a discussion presented in Section 4. Finally, conclusions are offered.
Literature
In the context of housing literature, amenities and environment effects are key considerations, and
hedonic methods with spatial analyses have gained popularity to provide estimates of the proximity
“effect” of a variety of positive and negative environment-specific externalities on property prices
(McConnell and Walls, 2005). Numerous studies have examined proximate locational externalities
(Kauko, 2003) demonstrating added or destroyed value based on the urban environment (Des Rosiers et
al., 2002), neighbourhood style and distance and accessibility to amenities (Brunauer et al., 2013; Liao
and Chen, 2013; Reed, 2013; Dube¨ et al., 2014) displaying mixed pricing effects. There is a long and
evolutionary history investigating the relationship between air (quality) and noise (pollution) and property
prices within hedonic price schedules, with the approach becoming an established methodology in
environmental economics (Anselin and Lozano-Gracia, 2008).
Seminal studies examined the relationship between air pollution (dosages) and real estate values (Crocker,
1968; Reid, 1962; Ridker, 1967; Anderson and Crocker, 1971), illustrating the fundamental thesis that a
portion of air pollution damage to artifacts and organisms is capitalised negatively into the value of land
and immobile durable improvements thereon. The studies of Ridker and Henning (1967) and Harrison
and Rubinfeld (1978) served to generate a voluminous literature base scrutinising the theoretical,
methodological and empirical aspects of air quality (Anselin and Lozano-Gracia, 2008) suggesting that
property value differences are a result of variations in air pollution. This is rife in numerous international
b
ased studies. In the Latin American context, a number of studies have examined the relationship between
air quality and property value (Filippini and Martínez-Cruz, 2016). In Columbia, and primarily the
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