Impact Of Air Pollution On Property Values: A Hedonic Price Study

Abstract

The main purpose of this study is the calculation of implicit prices of the environmental level of air quality in Yogyakarta on the basis of housing property prices. By means of Geographical Information System, the housing property prices characterized from the area which have highest air pollution level in province of Yogyakarta. Carbon monoxide is used as the pollution variable. The methodological framework for estimation is based on a hedonic price model. This approach establishes a relationship between the price of a marketable good (e.g. housing) and the amenities and characteristics this good contains. Therefore, if variations in air pollution levels occur, then households would change their behavior in an economic way by offering more money for housing located in highly improved environmental areas. The hedonic regression results that the housing price decrease while increasing the level of air contamination such substance as carbon monoxide.