The Value of Connectivity: High-Speed Broadband Internet and Real Estate Prices

Thomas A. Fackler, Oliver Falck, Simon Krause and Thomas Fackler

No 11595, CESifo Working Paper Series from CESifo

Abstract: Governments worldwide subsidize rural broadband expansion to address the urban-rural connectivity divide, but the economic benefits and costs remain unclear. This paper examines the causal effect of high-speed Internet on real estate prices and evaluates the fiscal effectiveness of rural broadband subsidies. Using a spatial regression discontinuity design and comprehensive micro-data, our identification strategy exploits variation at state borders from German states’ broadband expansion policies. We find that high-speed Internet availability (16 Mbit/s) increases rents by 3.8 percent (€17/month) and sale prices by 8 percent (€14,700) compared to slower access at the discontinuity, with diminishing returns at higher speeds. The capitalization effects are demand-driven, as evidenced by increased broadband uptake, migration, and remote work adoption, while property supply remains unaffected. A cost-benefit analysis within the marginal-value-of-public-funds framework shows the economic surplus exceeds deployment costs for 90 percent of households, while property owners benefit from subsidies through higher property prices.

Keywords: high-speed broadband internet; real estate prices; capitalization effect; policy evaluation; local public finance; spatial RDD; MVPF (search for similar items in EconPapers)
JEL-codes: D60 H40 H70 L86 R20 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-ict and nep-ure
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