Valuing water resources in Switzerland using a hedonic price model

Abstract

In this paper, linear and spatial hedonic price models are applied to the housing market in Switzerland, covering all 26 cantons in the country over the period 2005–2010. Besides structural house, neighborhood and socioeconomic characteristics, we include a wide variety of new environmental characteristics related to water to examine their role in explaining variation in sales prices. These include water abundance, different types of water bodies, the recreational function of water, and water disamenity. Significant spatial autocorrelation is found in the estimated models, as well as nonlinear effects for distances to the nearest lake and large river. Significant effects are furthermore found for water abundance and the distance to large rivers, but not to small rivers. Although in both linear and spatial models water related variables explain less than 1% of the price variation, the distance to the nearest bathing site has a larger marginal contribution than many neighborhood-related distance variables. The housing market shows to differentiate between different water related resources in terms of relative contribution to house prices, which could help the housing development industry make more geographically targeted planning activities.