Contamination by the Israeli military industry and its impact on apartment sale prices in an adjacent Tel Aviv neighborhood: a hedonic pricing model study

Abstract

This study quantifies the effect of environmental degradation due to contamination from Taas Magen, an Israeli Defense Force industrial facility, on the nearby housing market. A model was constructed so as to isolate the impact of the contamination from that of the facility itself by incorporating information regarding public awareness of the contamination. The resulting regression analysis suggests that distance from the site of the facility affected home prices only after the general public became aware of the contamination. Therefore, it is specifically the environmental contamination, rather than the facility as of itself, that negatively impacted prices.As a result of the contamination, apartment prices fell by an average of $24,665 (2006 dollars), equal to approximately 14% of the sales price of an average apartment in the sample area. Total losses to the surrounding housing market are accordingly estimated at between $267 and $287 million. These loss estimates serve as a lower bound for the total social and economic costs incurred by the greater community due to the contamination, which are estimated to total at least $358 million.Assuming the government were to fund the estimated $33 million cleanup costs, a minimum gain of 1.5% in sale prices within this $2.2 billion housing market would create the necessary economic benefit to offset the cost of decontaminating the site. Similarly, a more technologically advanced, yet expensive, remediation process would require a gain of 10.1% in housing market prices to offset its costs. Ultimately, reclaiming a lost aquifer, reduction in human health risks, restoration of environmental integrity, and further increases in housing market value are all benefits of remediation that may greatly outweigh the required cleanup costs.