Impacts of an Iron and Steel Plant on Residential Property Values

Abstract

The hedonic price method is used to estimate the relationship between residential property values and proximity to an integrated iron and steel plant located in the outskirts of Gijón, a city in the north of Spain. Empirical results suggest that there is a statistically significant negative relationship between housing values and the distance from the iron and steel plant. From a partial equilibrium analysis, increasing the distance from the plant, decreasing plant production or dismantling the plant would lead to an increase in the value of the housing units. The results show as well that the housing units located nearest to the factory would be the most favoured by applying the aforementioned changes.

Acknowledgements

The author is grateful from funding provided by the Spanish Ministry of Science and Technology (CICYT) project ECO2008-06365-C05-05/ECON. The helpful comments of two anonymous referees are also acknowledged. A previous version of this work has been published as Working Paper no 339/2007 in the collection of Working Papers from the Fundación de las Cajas de Ahorros (FUNCAS).

Notes

This section is based on the paper of Harber and Forth (2001).

For further information on the techniques for measuring different contaminants see “La Calidad del aire en Gijón 2007”, Environmental Protection Service, Gijón City Council, 2007.

Source Austrian Society for Economic and Industrial Studies (SADEI).

The origin of the hedonic price method is found in research by Court (1939) and Griliches (1971) for the automobile sector, but studies usually begin by referring to the work done by Rosen (1974) since this gives microeconomic foundations to the method.

Before the seminal article by Rosen (1974), the hedonic technique had already been applied to the housing market in numerous studies. Some examples of these applications can be found in the survey conducted by Ball (1973).

As regards the problems and solutions to the second stage analysis, there are studies by Follain and Jimenez (1985), Palmquist (1991), Freeman III (2003) and Ekeland et al. (2002, 2004).

More information on the methodology used in the market study may be found in “Estudio de Mercado de vivienda nueva en Gijón”, Foro Consultores Inmobiliarios (2002) and at www.foroconsultores.com.

Here are three beaches in the town.

It has not been possible to include other environmental variables such as traffic noise or the emissions of polluting agents. Unfortunately, there are no reliable data for other significant sources of pollution in the city.

The results of the other functional forms are available from the author upon request.