Air pollution and property values in urban areas

The problem of air pollution is a worldwide phenomenon. One manifestation of the problem is the existence of air pollution regulations. The general objective of this study was to provide information useful in establishing air quality standards as well as adding to the body of knowledge about the economics of air pollution. To accomplish this objective, the hypothesis that the level of air pollution and property values were negatively related was tested.

In order to do this, it was necessary to accomplish two specific objectives. The first was to determine the association between levels of air pollution and property values. This objective was accomplished for an individual city as well as a group of 60 cities across the United States. Secondary data on variables thought to be important in explaining property values were utilized in a regression model to accomplish the first objective.

The second objective of this study was to explore alternative methods of estimating economic loss attributable to air pollution. This objective is connected with the first in that the analysis involving 60 cities represents a different approach to estimating economic loss. In addition, some work was done with consumer expenditure data, but these results were inconclusive and are not reported in this study.

Results of the single-city analysis did not support the hypothesis that property values were negatively influenced by air pollution. Instead, they suggest that property owners acted as if air pollution did not influence them in their estimation of property values. Alternatively, the real estate market may not have functioned properly so that if air pollution did exert a negative influence, it was not communicated to the owners. However, caution is urged in interpreting the results because of data inadequacies which may seriously hamper the validity of the results obtained.

The results of the analysis involving 60 cities did indicate a negative relationship between the level of air pollution and property values. To the author's knowledge, this approach to measuring the economic loss attributable to air pollution has not been used previously. As was the case in the single-city analysis, income proved to be very important in explaining variations in property values. The negative effect of air pollution, while statistically significant, was small compared to the influence of other variables in the model. When evaluated at the mean, the loss estimates obtained in this study ranged from $3.50 to $4.00 decrease for each 1% increase in pollution level.

This study led to the following conclusions:

1. Air pollution does exert a negative influence on property values.

2. Attempts at measuring the extent of this influence can benefit from utilizing more accurate measures of pollution.

3. Owner-occupied housing units were more responsive to the level of air pollution than renter-occupied units.

4. The actual size of the economic loss attributable to air pollution is not known.

5. Alternative approaches to estimating the size of this loss should be pursued.