Negative Externalities and Implicit Non-Linear Prices: Capitalization of Highway Noise into Housing Values

Yuval Arbel, Chaim Fialkoff and Amichai Kerner

Journal of Real Estate Literature, 2017, vol. 25, issue 2, 335-364

Abstract: We exploit unique micro data and special acoustic equipment to estimate the impact of highway noise on housing prices. We observe the housing values and characteristics of single-family newly constructed housing units in an isolated neighborhood in the town of Atlit, a bedroom community near Haifa, Israel. The neighborhood is located near the only highway to Haifa, one of the three major metropolitan centers in Israel. The highway noise is the only observable or sound-related externality in the neighborhood. Unlike previous studies, we use polynomial curve fitting, which permits non-linearity in the implicit price of 1 dB. The findings suggest a significant increase in the incremental price discount per 1 dB with the level of noise from 0% at 47–50 dB to 4.83% at 55 dB, and thus provide further support to the conventional hedonic theory of implicit non-linear prices.

Date: 2017
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DOI: 10.1080/10835547.2017.12090462

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