The impact of air pollution on the housing market: The case of Madrid

Marina Gómez-García
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Marina Gómez-García: Universidad Autónoma de Madrid and Banco de España

No 2624, Working Papers from Banco de España

Abstract: This paper estimates the causal impact of air pollution on housing prices in Madrid, a large European city with relatively high and persistent nitrogen dioxide (NO2) concentrations and a home ownership rate of around 70%. Using location-specific data on pollution levels and the universe of housing transactions, my estimation controls for house and neighborhood characteristics, year and neighborhood fixed effects, a bad weather index and a set of time-varying neighborhood characteristics. To address endogeneity concerns, I make use of quasi-experimental variation in nitrogen dioxide levels resulting from temperature inversions. The results suggest that a 10% increase in air pollution reduces housing prices by 0.65% (around €1,327 for the average house). This effect is robust to alternative measures of air pollution, different bad weather indices and the inclusion of seasonality dummies, and is highly non-linear, being larger for higher levels of pollution.

Keywords: air pollution; housing market; valuation of environmental effects (search for similar items in EconPapers)
JEL-codes: Q51 Q53 R31 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2026-07
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:2624e

DOI: 10.53479/44185

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