Measuring Highway Impacts on House Prices Using Spatial Regression

Abstract

Generally accepted real estate valuation theory, augmented by ample empirical evidence, supports the notion of significant impacts on prices of residential properties near highways. Houses adjacent to highways are exposed to potentially increased traffic noise, although these homeowners may benefit from increased accessibility to highway systems. This study is prompted by a massive new highway construction project (25 miles at a cost of $1.5 billion over a nine-year period) that will complete a 110-mile beltway around the Orlando, Florida metropolitan area. Using observed prices of houses near existing highways, this study provides insights into the potential effects of the new highway on planned and existing houses in this market. The results indicate significant price discounts for houses adjacent to highways, houses near high-traffic highways, and houses farther from highway on-ramps, but no significant impact related to distances from houses to highways or sound barrier walls. Real estate value theorists and practitioners widely acknowledge the importance of considering external influences when analyzing real estate values. Nearby transportation systems are a classic case of offsite factors that may affect real estate values. While highways, rail, and airports generally provide positive benefits to real estate users at the macro level by increasing accessibility, micro-level effects of planes, trains, and automobiles may be negative due to potential nuisances generated by transportation systems. For residential real estate in particular, a critical issue at the micro-level is the impact of noise from nearby transportation infrastructure on house prices. Numerous studies, some of which are discussed below, use a variety of analysis methods to detect and measure the price effects of transportation-related noise pollution generated by airports, railways, and highways in various housing markets around the world. These studies document consistently significant price discounts for noise pollution related to nearby transportation systems but, not surprisingly, the magnitudes of the reported discounts vary across markets. Previous studies typically use one of two alternative approaches to consider the impacts of highways on house prices, including noise pollution. The first of these approaches uses noise levels measured in decibels and the second approach uses transportation infrastructure adjacency and proximity measures. As noted by Seo,