Air Pollution and the Effects on House Prices: A Push for Sustainability

Ping Feng, Ziqi Zhou, Jeffrey P. Cohen &Mahmut Yasar

2024-05-03

Environmental sustainability has become an important issue of concern throughout many countries. Among the many sources of concern include air pollution, the effects of which are often capitalized into house prices. In this article, we focus on air pollution in the city of Changsha, China, and the impacts of new pollution regulations on the relationship between pollution exposure and house sales prices. We use the Air Quality Index (Aqi) data from 10 air quality monitoring stations in Changsha to interpolate a previous 12-month average Aqi value for each dwelling unit in the city, based on geographical location. Controlling for important house characteristics such as the living area and the distance to the nearest subway stations, we use the Blue Sky Protection Campaign action plan (BSPC) as the quasi-natural experiment to identify the causal effect of air pollution on house prices. We find dwelling units that were previously in relatively higher-polluted neighborhoods saw their values increase by about 2% after the pollution regulation was implemented, which is statistically significant. This implies China could achieve greater housing wealth for its homeowners by implementing further pollution restrictions, both in Changsha and perhaps also in other parts of the country. Other Asian countries could potentially learn from the results of this analysis.

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Overlapping Real Asset Networks and Corporate Investment

Jeffrey Cohen, David C. Lin, Andy Naranjo, Chongyu Wang

2024-04-15

This study shows how interconnected real asset networks among corporations influence their investment decisions. We develop a theoretical model predicting that commonalities in firms’ asset networks drive higher optimal investment levels, and we empirically test these predictions using spatial econometrics and network methods. Controlling for industry and headquarters co-investments, we find a 1% increase in the instrumented asset network co-investments leads to a 0.37% increase in the typical firm’s investment rate. While prior research often proxies geographic connectivity using headquarters co-location, we show that overlapping subsidiary networks are a stronger predictor of investment spillovers. We further show that our findings are not driven by non-tradable goods and services sectors nor by firms whose subsidiary networks are tilted toward states that are expected to produce faster economic growth, ruling out alternative explanations related to localized economic conditions. Importantly, we identify a collateral channel, where firms with higher corporate real estate holdings that can be pledged as collateral for debt financing experience stronger investment effects. We find that firms’ debt issuance is similarly affected by their asset network connections, reinforcing the role of corporate real estate as a financial conduit. Our findings are robust to alternative model specifications and omitted variable concerns. Overall, this study provides new insights into how real asset networks shape the locational boundary of firms and their corporate financial policies, challenging conventional reliance on headquarters location as the primary locational determinant of peer effects in investment behavior.

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Transit and treatment: Aligning systems to address substance use in Connecticut

Jeffrey P. Cohen PhD, Steven Huleatt MPH, Shane Murphy PhD, Carla J. Rash PhD

2023-12-21

For providers with programs within 1-mile of new transit (compared with a “control” sample beyond 1-mile of new transit), (i) a 10% increase in clients leads to a 0.12% lower operating costs per client; (ii) a 10% increase in clients completing treatment results in a 1.5% decrease in operating costs per client; (iii) a 10% increase in clients receiving treatment for multiple services causes a 0.81% lower operating costs per client; (iv) offering multiple services leads to 6.3% lower operating costs. New transit proximity causes operating cost savings for substance use disorder/mental health treatment providers. System alignment may benefit transit and health care sectors.

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Housing Price Cycle Interdependencies and Comovement: A Markov-Switching Approach

Jeffrey Cohen, Cletus Coughlin & Daniel Soques

2023-08-30

This paper uses a Markov-switching approach to examine why there is house price cycle comovement across some U.S. metropolitan areas (MSAs) but not others, and which MSAs cluster together for each of these reasons. Past studies have attributed common housing downturns in different regions as possible explanations for comovement. We explore other channels, and find some clusters based on common industry concentration (such as information technology), house price elasticity, as well as a cluster of MSAs that are desirable for retirees (in the sun belt). We find seven clusters of MSAs, where each cluster experiences idiosyncratic house price downturns, plus one distinct national house price cycle. Notably, only the housing downturn associated with the Great Recession spread across all the MSAs in our sample; all other house price downturns remained contained to a single cluster. We also identify MSA economic and geographic characteristics that correlate with housing price cluster membership, which implies comovement due to mobility of residents. In addition, while prior research has found housing and business cycles to be related closely at the national level, we find very different house price comovement and employment comovement across clusters and across MSAs.

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Do Higher House Prices Crowd-Out or Crowd-In Manufacturing? A Spatial Econometrics Approach

Ping Feng, Mahmut Yasar & Jeffrey P. Cohen

2023-07-07

This paper examines the hypothesis that higher house prices lead to greater manufacturing concentration in Chinese cities. There are several innovations in our work, such as allowing for feedback and spillover effects across cities via using spatial panel data models. We also address the endogeneity of house prices with a difference-in-differences approach that relies on house purchase restrictions imposed by some local governments that vary across cities and time, which limit the number of homes residents can purchase, and with an instrumental variables approach. Across various model specifications, we find robust evidence of significant crowding-in of manufacturing firms when house prices rise. This crowding-in impact tends to be dampened in cities with house purchase restrictions in effect. Our direct, indirect, and total effects of house price changes on manufacturing concentration imply significant feedback and spillover effects across cities when a city’s house prices change and when a city experiences a house purchase restriction. These findings have important potential policy implications for real estate markets when local policymakers want to increase their city’s manufacturing concentration. These include offering subsidies and/or other incentives for homeownership, and discouraging house purchase restriction policies by the local governments.

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Longer‐term housing market effects of a major U.S. airport closure

Jeffrey P. Cohen, Cletus C. Coughlin, Jonas Crews, Stephen L. Ross

2023-03-11

Using a unique dataset, we examine various effects of closing Denver's Stapleton Airport, and subsequent redevelopment, on nearby housing markets. We find immediate anticipatory price effects upon announcement, but no price changes at closing and little evidence of upward trending prices between announcement and closing. Post-closure, more higher income and fewer Black households moved in, and developers built larger houses on larger lots. Increases in the price of pre-existing housing are also found. Finally, we find that post-closing price increases were largest in areas that were closest to the center of new commercial development and that had greater exposure to new housing construction.

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Geographically Overlapping Real Estate Assets, Liquidity Spillovers, and Liquidity Multiplier Effects

Chongyu Wang, Jeffrey P. Cohen & John L. Glascock

2022-04-08

When liquidity providers for one asset obtain information from other asset prices, this may magnify the (upward or downward) comovement of asset liquidity. It also may yield an illiquidity multiplier (Cespa and Foucault, Review of Financial Studies, 27(6), 1615–1660, 2014). We empirically test the magnitude of this illiquidity multiplier for a sample of U.S. equity real estate investment trusts (REITs) using spatial autoregressive models (Zhu and Milcheva, Journal of Real Estate Finance and Economics, 61(3), 443–475, 2018). We find significant liquidity spillovers among REITs with geographically overlapping real estate holdings. Our findings suggest that the multiplier effect impacts neighboring REITs through cross-asset learning about firm fundamentals. This effect is stronger during market turmoil, after the Decimalization (a source of exogenous variation), and for REITs headquartered in MSAs with less information asymmetry.

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Continuation of air services at Berlin‐Tegel and its effects on apartment rental prices

Philipp Breidenbach, Jeffrey Cohen, Sandra Schaffner

2022-04-23

Berlin-Brandenburg airport (BER) became well-known far beyond German borders due to substantial planning problems and multiple opening delays. Originally planned to open in March 2012, BER finally opened in 2020, after seven delay announcements. Focusing on the two most surprising and meaningful announcements, these unexpected delays form an exogeneous shock for residents surrounding the largest existing airport, Berlin-Tegel, which was expected to close immediately upon opening of BER. We use these delay announcements as a quasi-experiment to analyze separately the effects on apartment rental prices of aircraft noise (due to arriving/departing flight paths) and airport proximity (accessibility). The results suggest there is a negative effect of aircraft noise on rental prices of 2%–5%, while there are positive proximity effects from Berlin-Tegel of 1%–3%. We consider heterogeneity using quantile regression and find the negative noise effects are larger for higher priced apartments. We disentangle aircraft noise and other (environmental) noise effects, and herein find that aircraft noise lowers property values by 2%–2.8%, while properties facing additional environmental noise experience a separate 1.7% decrease. In a joint model of noise and proximity, we observe the proximity benefits and the noise externalities essentially cancel each other out.

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The Impact of the Coronavirus Pandemic on New York City Real Estate: First Evidence

Jeffrey P. Cohen, Felix L. Friedt, Jackson P. Lautier

2022-03-09

We investigate whether pandemic-induced contagion disamenities and income effects arising due to COVID-related unemployment adversely affected real estate prices of one- or two-family owner-occupied properties across New York City (NYC). First, ordinary least squares hedonic results indicate that greater COVID case numbers are concentrated in neighborhoods with lower-valued properties. Second, we use a repeat-sales approach for the period 2003–2020, and we find that both the possibility of contagion and pandemic-induced income effects adversely impacted home sale prices. Estimates suggest sale prices fell by roughly $60,000 or around 8% in response to both of the following: 1000 additional infections per 100,000 residents and a 10-percentage point increase in unemployment in a given Modified Zip Code Tabulation Area (MODZCTA). These price effects were more pronounced during the second wave of infections. On the basis of cumulative MODZCTA infection rates through 2020, the estimated COVID-19 price discount ranged from approximately 1% to 50% in the most affected neighborhoods, and averaged 14%. The contagion effect intensified in the more affluent, but less densely populated NYC neighborhoods, while the income effect was more pronounced in the most densely populated neighborhoods with more rental properties and greater population shares of foreign-born residents. This disparity implies the pandemic may have been correlated with a wider gap in housing wealth in NYC between homeowners in lower-priced and higher-priced neighborhoods.

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Perception vs. reality: The aviation noise complaint effect on home prices

Felix L. Friedt, Jeffrey P. Cohen

2021-11-01

Intercity air transportation has grown rapidly in recent decades and creates significant noise pollution that affects health. Previous research quantifies the losses that are capitalized into home values. Much research relies heavily on spatially restrictive noise contour plots to identify the house price discounts and determine economic damages. We break new ground by investigating whether residential noise complaints can offer insights on aircraft noise pollution and housing price impacts experienced by residents near Minneapolis-Saint-Paul International Airport outside of contour boundaries. Our findings indicate noise complaints are a reliable measure of residential noise annoyance and have a significant adverse effect on home prices extending nearly twice as far (10 km) as contours. Reevaluating economic damages based on our results indicates contour-based calculations severely underestimate aircraft-noise-pollution-induced losses incurred by homeowners and suggests $154 million of $167 million in post-abatement damages are borne by residents located outside the regulated Minneapolis contour area.

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1960s Interstate Highways and Homeowner Wealth Distribution

Jeffrey P. Cohen , Nicholas Lownes , Bo Zhang

2021-10-21

This article studies house-level real estate wealth distribution changes nearby a major interstate highway, comparing values before the announcement of the highway's construction (1940) with those during and shortly after the construction period (1961-74). We also develop Lorenz curves to examine the distribution of housing wealth among various demographic groups of homeowners. First, we find that properties at least a half-mile away from I-84 experienced statistically significant appreciation (on average). Houses further away, in 0.25 mile increments up to 1.25 miles, appreciated less. Our Lorenz curves exhibit a small inequitable distribution of wealth gains among all homeowners experiencing appreciation. But there was a large inequitable distribution of wealth losses among homeowners whose houses depreciated in value during and after construction compared with 1940 (pre-announcement). The Lorenz curves imply that, for the 10th percentile of homes with wealth increases, the majority-White-population Census tracts experienced over 25 percent higher house price appreciation than the majority-Black-population Census tracts. Finally, we observe that approximately 0.5 percent of the houses in our 1940 Census sample of around 2,500 homes had a Black homeowner.

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Storm Surges, Informational Shocks, and the Price of Urban Real Estate: An Application to the Case of Hurricane Sandy

Jeffrey P. Cohen, Jason Barr

2021-09-01

The impacts of a major hurricane on residential real estate can be devastating. Hurricane Sandy in New York City (NYC) is among the examples of how flooding can unexpectedly extend beyond FEMA flood zones. Such surprises or negative shocks can provide property owners—especially those not flooded—with new information about future flood risks, based on the difference of the property distance from the mapped flood zone and the distance to the actual locations of flooding. We use a difference-in-differences approach to quantify the effects of these shocks on residential property values for non-flooded NYC properties after Sandy. The short-run negative “surprise” effect was to lower NYC housing prices by about 6%–7% for each mile (or about 2% per standard deviation) difference between the property distance from the flood zone and the distance to the actual locations of flooding. The corresponding positive “surprise” effect is insignificant. The long-term surprise effects of flood risk on housing prices tend to disappear, as residents’ memories of the surprise fade and they seem to only recall the actual storm surge several years after the hurricane.

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Are Estimates of Rapid Growth in Urban Land Values an Artifact of the Land Residual Model?

John M. Clapp, Jeffrey P. Cohen, Thies Lindenthal

2021-08-07

Separating urban land and structure values is important for national accounts and for analysis of real estate risk over time. A large part of the literature on urban land valuation uses the land residual method, which relies on the assumption that structures are easily replaced. But urban land value depends on accessibility to nearby land uses, implying that infrastructure and the slowly changing built environment are the most important components of land value. Investments in structures are only slowly reversible, implying that land and structure function as a bundled good whereas land residual theory severs the connection between land value and structure value over time. We develop a simple theoretical model that includes option value and compare to a nested land residual model before and after a shock to values. Cross-sectionally our model shows that land residual theory overestimates structure value. Over time almost all of any change in property value is allocated to land residuals. Data from Maricopa county, AZ, 2012–2018 strongly support option value models when nested within a general model that also includes land residuals. FHFA estimates use entirely different cost estimation methods: our analysis of FHA data suggest that our conclusions generalize to the U.S. as a whole, and that high and rising land value ratios over 50 years (the “hockey stick” pattern found in the literature) are likely an artifact of the residual model.

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Valuation of Noise Pollution and Abatement Policy: Evidence from the Minneapolis-St. Paul International Airport

Felix L. Friedt and Jeffrey P. Cohen

2021-02-01

Aircraft noise pollution has adverse physical and mental health effects that are capitalized in the affected home values. We contribute to the literature estimating these noise discounts by our novel identification strategy that analyzes the “treatment effect” of two local government subsidized soundproofing initiatives near the Minneapolis-Saint Paul International Airport. Combining a repeat-sales sample with data on aircraft noise pollution (1990–2014), we find a causal noise discount of around $25,000 per sale of noise-affected, but abatement-ineligible, properties, whereas abatement-eligible homes experience a negligible effect post soundproofing indicating a return on abatement investments as a high as 40% in Minneapolis.

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Measuring Household Distress and Potential Policy Impacts

Jeffrey P. Cohen, Cletus Couglin, William R. Emmons, Jacob Haas

2021-01-01

Anecdotal evidence suggests many households are struggling to meet their financial obligations (e.g., making loan payments). Yet housing markets and consumer spending have been strong, and personal bankruptcies and mortgage foreclosures are at multiyear lows. Expansive government policies that include income support, extended unemployment insurance, low interest rates, and relief from default or foreclosure may help explain low levels of reported distress. However, a major concern is that current policy measures are simply postponing rather than eliminating the household distress.

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The Bargaining and Contagion Effects of Investors in Single Family Residential Properties: The Case of Denver Colorado

Jeffrey P. Cohen, John P. Harding

2020-06-10

We study the bargaining power of investors and the contagion effects of investor-owned single family homes on nearby property values. By controlling for the characteristics of both buyers and sellers, we find that investors tend to have more bargaining power than owner-occupiers — they purchase at lower prices and sell at higher prices, all else equal. We identify two types of investors: Professional Investors (e.g., corporations and partnerships) and Individual Investors. We find differences in the behavior of these two types of investors. For example, Individual Investors tend to invest in homes similar in terms of unobserved quality to those purchased by owner-occupiers. The tendency to buy lower quality homes is primarily attributable to Professional Investors. We also find that Professional Investors have more bargaining power than Individual Investors. For the contagion analysis, we use a repeat sales methodology and find that increasing ownership by investors in a neighborhood is associated with a small positive effect on nearby property values.

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Time-Geographically Weighted Regressions and Residential Property Value Assessment

Jeffrey P. Cohen, Cletus C. Coughlin & Jeffrey Zabel

2019-07-24

In this study, we develop and apply a new methodology for obtaining accurate and equitable property value assessments. This methodology adds a time dimension to the Geographically Weighted Regressions (GWR) framework, which we call Time-Geographically Weighted Regressions (TGWR). That is, when generating assessed values, we consider sales that are close in time and space to the designated unit. We think this is an important improvement of GWR since this increases the number of comparable sales that can be used to generate assessed values. Furthermore, it is likely that units that sold at an earlier time but are spatially near the designated unit are likely to be closer in value than units that are sold at a similar time but farther away geographically. This is because location is such an important determinant of house value. We apply this new methodology to sales data for residential properties in 50 municipalities in Connecticut for 1994–2013 and 145 municipalities in Massachusetts for 1987–2012. This allows us to compare results over a long time period and across municipalities in two states. We find that TGWR performs better than OLS with fixed effects and leads to less regressive assessed values than OLS. In many cases, TGWR performs better than GWR that ignores the time dimension. In at least one specification, several suburban and rural towns meet the IAAO Coefficient of Dispersion cutoffs for acceptable accuracy.

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Traffic Noise in Georgia: Sound Levels and Inequality

2019 Using Lorenz-type curves, means tests, ordinary least squares, and locally weighted regressions (LWR), we examine the relative burdens of whites, blacks, and Hispanics in Georgia from road and air traffic noise. We find that whites bear less noise than either blacks or Hispanics and that blacks tend to experience more traffic noise than Hispanics. While every Metropolitan Statistical Area (MSA) showed that blacks experienced relatively more noise than average, such a result did not hold for Hispanics in roughly half of the MSAs.

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