| By: |
Gabriel M. Ahfeldt;
Pantelis Koutroumpis;
Tommaso Valletti |
| Abstract: |
This paper shows that having access to a fast Internet connection is an
important determinant of capitalization effects in property markets. We
combine microdata on property prices in England between 1995 and 2010 with
local availability of Internet broadband connections. Rich variation in
Internet speed over space and time allows us to estimate the causal effect of
broadband speed on property prices. We find a significantly positive effect,
but diminishing returns to speed. Our results imply that an upgrade from
narrowband to a high-speed first generation broadband connection (offering
Internet speed up to 8 Mbit/s) could increase the price of an average property
by as much as 2.8%. A further increase to a faster connection (offering speeds
up to 24 Mbit/s) leads to an incremental price effect of an additional 1%. We
decompose this effect by income and urbanization, finding considerable
heterogeneity. These estimates are used to evaluate proposed plans to deliver
fast broadband universally. We find that increasing speed and connecting
unserved households passes a cost-benefit test in urban and some suburban
areas, while the case for universal delivery in rural areas is not as strong. |
| Keywords: |
Internet, property prices, capitalization, digital speed, universal access to broadband |
| JEL: |
L1 H4 R2 |
| Date: |
2014–07 |
| URL: |
http://d.repec.org/n?u=RePEc:cep:sercdp:0161&r=ict |