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Measuring the impact of pollution on property prices in Madrid: objective versus subjective pollution indicators in spatial models

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Abstract

Much work has been done in the context of the hedonic price theory to estimate the impact of air quality on housing prices. Research has employed objective measures of air quality, but only slightly confirms the hedonic theory in the best of cases: the implicit price function relating housing prices to air pollution will, ceteris paribus, be negatively sloped. This paper compares the performance of a spatial Durbin model when using both objective and subjective measures of pollution. On the one hand, we design an Air Pollution Indicator based on measured pollution as the objective measure of pollution. On the other hand, the subjective measure of pollution employed to characterize neighborhoods is the percentage of residents who declare that the neighborhood has serious pollution problems, the percentage being referred to as residents’ perception of pollution. For comparison purposes, the empirical part of this research focuses on Madrid (Spain). The study employs a proprietary database containing information about the price and 27 characteristics of 11,796 owner-occupied single family homes. As far as the authors are aware, it is the largest database ever used to analyze the Madrid housing market. The results of the study clearly favor the use of subjective air quality measures.

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Notes

  1. Version 3 of MCLUST for R is available as a contributed package (MCLUST) in the R language. It can be obtained from CRAN at http://cran.r-project.org/web/packages/mclust/index.html.

  2. Should the null is rejected, the two-stage least squares (TSLS) method should be used because the estimates it produces are consistent (Anselin and Lozano-Gracia 2008). Instruments are not only needed for the API but also for the spatial lag of the endogenous variable Wy. It is common practice in the literature (Kelejian and Robinson 1993; Kelejian and Prucha 1998; Anselin 2007) to take the successive powers of \( {\mathbf{WX}}:\left\{ {{\mathbf{WX}},{\mathbf{W}}^{2} {\mathbf{X}},{\mathbf{W}}^{3} {\mathbf{X}}, \ldots ,{\mathbf{W}}^{p} {\mathbf{X}}} \right\} \) as instruments for Wy, and longitude and latitude coordinates as instruments for the API (Anselin and Lozano-Gracia 2008). The API indicator is excluded from the instruments to avoid endogeneity bias.

  3. The results are practically the same for the API-model.

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Acknowledgments

This work has been partially funded by Junta de Comunidades de Castilla-La Mancha, under FEDER research project POII10-0250-6975. We would like to thank Felipe D. Carrillo (United States Fish and Wildlife Service) for his valuable help in mapping work. We would also like to thank the anonymous reviewers for their useful, constructive, and valuable comments, which have undoubtedly improved the original version of the manuscript.

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Authors and Affiliations

  1. University of Castilla-La Mancha (at Cuenca), Avenida de los Alfares, 44, 16002, Cuenca, Spain

    Román Mínguez

  2. University of Castilla-La Mancha (at Toledo), Cobertizo S. Pedro Mártir, SN, 45071, Toledo, Spain

    José-María Montero & Gema Fernández-Avilés

Authors
  1. Román Mínguez
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  2. José-María Montero
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  3. Gema Fernández-Avilés
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Correspondence to José-María Montero.

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Mínguez, R., Montero, JM. & Fernández-Avilés, G. Measuring the impact of pollution on property prices in Madrid: objective versus subjective pollution indicators in spatial models. J Geogr Syst 15, 169–191 (2013). https://doi.org/10.1007/s10109-012-0168-x

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  • DOI: https://doi.org/10.1007/s10109-012-0168-x

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