The effect of traffic noise on housing prices: empirical study in Helsinki
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School of Business |
Master's thesis
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Date
2022
Department
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Mcode
Degree programme
Economics
Language
en
Pages
74
Series
Abstract
Urbanization has been one of the most significant societal phenomena throughout past decades, and the megatrend is expected to continue also in the future – the population forecasts for Helsinki Metropolitan Area indicate that the number of residents is expected to grow by more than 170,000 people by 2040. With urbanization comes also adverse consequences in the form of negative externalities such as noise pollution, which refers to undesired noise caused by human activities. Long-term exposure on unhealthy noise can have severe consequences on personal health, causing such symptoms as sleep disturbance, increased blood pressure or ischemic heart diseases. In Helsinki, the main source of noise pollution is traffic noise – according to most recent Helsinki Noise Study conducted in 2017, 26% of residents are exposed to unhealthy levels of traffic noise. Motivated by the status quo with the urban noise level in Helsinki, this paper studies the effect of noise on housing prices in the Finnish capital. Since human health is verifiably affected by traffic noise, it is plausible to assume that so are the values of dwellings as well. Housing prices have maintained strong upward trend over the recent years, and while simultaneously large share of gross wealth for Finnish people is allocated into owning property or dwelling, it is interesting to study the implicit prices for different housing characteristics in general. Building upon hedonic pricing theory, this paper estimates hedonic regression model in order to capture the implicit prices of dwellings located in multi-stored buildings in Helsinki, road traffic noise being the treatment variable while including also numerous of other housing features into the model as controlling variables. Besides housing features, the employed model includes controls for sales year and neighborhood fixed effects, in order to standardize the setting in all dimensions other than noise to reach the ultimate goal: identifying the noise effect in local housing markets. The literature review shows that the effect in other Nordic capitals has found to be between -0.24% and -0.60%. However, the empirical results in this paper provide evidence that in Helsinki, the effect of noise is inexistent. The first OLS model ignoring neighborhood effects finds negative effect of -0.24%, but when including controls for postal code area, the statistical significance fades away. For residents in Helsinki, most valuable features appear to be condition, proximity of downtown area, train station and seaside. Finns verifiably value also own plot and low maintenance charge which both refer to investment-related characteristics. The study utilized housing transaction data received through the price monitoring service maintained by KVKL (Kiinteistönvälitysalan Keskusliitto ry), while the noise data was based on noise mapping projects conducted by the City of Helsinki in 2007, 2012 and 2017.Description
Thesis advisor
Saarimaa, TuukkaKeywords
externalities, noise pollution, traffic noise, housing markets, housing prices, hedonic pricing theory, hedonic regression model