Series: Working Papers. 2624.
Author: Marina Gómez-García
Housing and real estate market
- Climate change and green transition
- Quantitative methods
- Spain
Full document
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.