| Abstract: |
As prior research has shown, airport expansions in densely populated urban
areas affect homeowners in surrounding areas. The effect on prices is expected
to be particularly pronounced in the London urban area due to the high
absolute valuations. This study will examine the announcement effects of (a)
the release of the planning report for Heathrow’s Northwest Runway on
01.07.15, (b) the acceptance of the plan by the Secretary for Transport on
14.12.2015, and (c) the official government approval for the initiation of
Heathrow’s airport expansion on 25.10.2016. The research focus of this paper
lies on the extent to which prices of single family, terraced and
semi-detached homes in those areas not yet affected by Heathrow’s runway noise
changed as a consequence of the announcements. In this context, it is of
particular interest whether the observed changes in property prices match the
noise contour proposed by the official planners’ report. The novelty of this
study lies in the fact that we focus on the home price effects of the
announcement of an airport expansion. For airports as opposed to other
infrastructure projects, announcement effects have so far not been analyzed in
the literature. This is understandable as the area affected by airport
expansions tends to be not only far larger than other infrastructure projects,
such as sports stadiums, but they are also more uncertain. In fact, the
expected future effects can vary significantly with advancing technology and
changing mobility patterns.Literature. The related literature reaches back to
1978, when Mieszkowski & Saper estimated the effects of airport noise on
residential property values at Toronto’s Malton Airport. In 1990, Pennington
et al. measured the same effect at Manchester’s airport. In a similar study in
1998, Tomkins, et. al. found that at Manchester’s airport the benefits of
expansion extended beyond the local economy, while the costs were concentrated
locally. In 2000, Espey & Lopez found a significant negative price discount
for surrounding residential buildings near RenoSparks’ airport. In 2004,
Nelson aggregated 20 studies covering 33 estimates of price discounts for 23
airports in Canada and the US to develop a model to explain the percentage
drop per decibel increase in airport noise. The first airport expansion case
in combination with noise discounts was analyzed by Mcmillen in 2004 on the
basis of the 1997 Chicago O’Hare expansion. In 2009, Dekkers & Straaten found
that noise discounts for residential property at Amsterdam’s airport surpassed
railway and road noise discounts. In 2015, Suksmith & Nitivattananon showed
that the noise of aircraft near Bangkok’s airport had an even higher impact on
residential house prices than air pollution. The most similar analysis in
terms of the data set and the focus on announcement effects is Kavetsos
(2012), who measured the impact of the London Olympics announcement on
residential prices. He found that properties in host boroughs sold at a
2.1%-3.3% premium after the announcement. Data. The data selected for this
research are limited to Greater London due to its economic importance, a high
international interest in changes of London property prices, and the amount of
available public data. We use transactions data with price and date
information retrieved from the UK Land Registry. Leasehold transactions and
all but terraced and semi-detached building types are excluded. These 1-3
storey single family homes are very typical of London and allow for good
comparability of sqqure meter prices. Single flats in multi-family homes,
detached homes, and other types are excluded to avoid different square meter
prices at the same address. The second data set used is the Ministry of
Housing database, which provides detailed Energy Performance Certificates of
the size and building material of each home. Since the data set is limited to
Greater London and a large number of buildings are appraised in the
metropolitan area of London, more than half of the addresses are matched from
1995 to 2018. The time window is reduced to 01.01.2015-31.12.2017 to cover all
announcement dates tested. Methodology. We use a difference-in-difference
approach, based on least squares, on the level of the individual property. For
the treatment area, we compare the current Heathrow noise map and with the one
predicted for 2030. The following control variables, which vary over time,
capture demographic changes on the borough level: the percentage of elderly,
young, and immigrants; population density, new unemployment rate, average
taxpayer income. GIS is used to create control variables for distances from
each address to the nearest amenity that could influence the value of a
property: to the central business district, sub-centers, metro stations,
rivers, kindergardens, schools, universities, and industrial areas. Time fixed
effects capture changes that affect both the treated and the control
areas.Preliminary Results. The preliminary results are summarized in Table 1.
They imply that there is a full 2 month reporting-timelag due to the
transaction duration. Contrary to popular opinion, the impact on prices
occurred shortly after the government acceptance was published on 14.12.15 and
not on the initial planning report release on 01.07.15. The results show that
political announcements have a positive relationship with home prices. The
magnitude of the effects increases as announcements become more official and
airport expansion plans become more realistic. One fact to be highlighted is
that the downward movement of prices was unexpectedly reversed with a public
release by Tory and Labour members to vote against the airport expansion.
Table 1: Table of Results of OLS Regression# Effect Date Price Discounts
Announcement Date Announcement1 2,2016 -4.27%* 14.12.15 Gov. accepts
expansion2 9,2016 -6.07%** 19.07.16 shareholders confirm runway funding3
12,2016 -4.14%* 25.10.16 Gov. approves expansion4 4,2017 -7.37%** 02.02.17
Gov. published its draft NPS on a third runway5 6,2017 -4.53%* 26.04.17 call
for tender expansion & logistics 6 8,2017 -6.39%** 26.07.17 modified air
quality plan7 11,2017 8.96%*** 24.08.17 Tory and Labor announce vote against
the expansion |