Academic journal article The Journal of Real Estate Research

A Meta-Analysis of the Effect of Environmental Contamination and Positive Amenities on Residential Real Estate Values

Academic journal article The Journal of Real Estate Research

A Meta-Analysis of the Effect of Environmental Contamination and Positive Amenities on Residential Real Estate Values

Article excerpt

Abstract

This paper addresses the effects of environmental contamination and positive amenities on proximate residential real estate property values in the United States. Contamination sources include leaking underground storage tanks, superfund sites, landfills, water and air pollution, power lines, pipeline ruptures, nuclear power plants, animal feedlots and several other urban nuisance uses. The study summarizes a literature review of 75 peer-reviewed journal articles and selected case studies, and generates a data set of about 290 observations that contain information about each study's loss (the dependent variable), with the independent variables being distance from the source, type of contamination, urban or rural environment, geographic region, market conditions and several other variables. Ordinary least squares is used to determine the effect of the contamination variables on reduction in property value. Broad contamination types, amenities, selected economic regions, distance from the source, information, research method and several other variables are statistically significant.

This research addresses how proximity to source influences environmental contamination effects on residential property values. Environmental sources that influence change property values include superfund sites, leaking underground storage tanks (LUSTs), landfills, air and water pollution, pipeline ruptures, nuclear power plants, overhead transmission lines, roads and several other urban nuisance uses. The paper begins with summarization of a literature review of 58 peer-reviewed technical journal articles and selected case studies from among over 100 articles and over 500 hours of research. Research findings are distilled into a data set of 230 observations that contain information about each study's dollar property value loss (the dependent variable), with the independent variables being distance from source, type of contamination, information, urban or rural environment, local and national market conditions, information about the contaminative event, remediation, study type and several other variables. Another 17 articles and 62 observations were gleaned from literature on views, parks, beaches and other positive amenities and their effect on residential sales price. Regression analysis is used to determine the effect of contamination and amenity variables on sales price, expressed in dollars or percent.

Contamination affects property values through impact on the real estate bundle of rights. These include the rights to possess, enjoy, control and dispose of real property. A loss can occur in ways other than the discounted sale (i.e., inability to access capital, finance or refinance, delay of sale, etc.). see Simons, Bowen and Sementelli (1999) or Jackson (2001) for a review how a loss can occur. The sales prices studied in this research are just the net proceeds in the disposal part of the real estate bundle of rights (realized capital loss), and do not consider the timing of sale. Conversely, positive amenities can provide additional value to property.

Meta-analysis has traditionally been used for clinical studies and never widely applied to other research disciplines. The main findings are that survey and case study methodologies consistently have a higher property value loss than regression analysis. While this observation has often been assumed, this study solidifies and quantifies the difference between methodologies. Other results are limited to the specific models and discussed in depth in their respective section. The motivation for conducting such an involved study is to determine the feasibility of developing a predictive model for analyzing environmentally-contaminated real estate, as well as whether different types of contamination can be included in the same model. This paper strives to understand and analyze the relevant literature.

Literature Review

There has been one meta-analysis of similar scope for air pollution, and three comprehensive literature reviews on the effect of contamination on real estate values. …

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