Drought and Property Prices: Empirical Evidence from Provinces of Iran

Mohammad Reza Farzanegan,Mehdi Feizi,Hassan F Gholipour

doi:10.1007/s41885-020-00081-0

Abstract

This study examines the effect of drought on housing and residential land prices in Iran. Using panel data covering the 2006–2015 period for 31 provinces of Iran and applying a dynamic system and the difference Generalized Methods of Moments (GMM) methods, we find that an increase in the balance of water (reducing the severity of drought) within provinces has a positive effect on property prices. Our results are robust, controlling for province fixed effects, time trend, and a set of control variables that may affect property prices.

Highlights

The purpose of this study is to examine the impact of drought on property prices in provinces of Iran throughout 2006–2015
This study examines the effect of drought on housing and residential land prices in Iran
Both difference and system Generalized Methods of Moments (GMM) estimation results support our earlier theoretical expectation in which an improvement in water balance is associated with a boost in housing and land values within provinces, controlling for other factors. These findings provide support to our hypothesis that reduction of drought severity leads to higher property prices in Iran

Summary

Introduction

The purpose of this study is to examine the impact of drought on property prices in provinces of Iran throughout 2006–2015. A few works to date on global warming/climatic factors and property prices have attempted to examine the impact of changes in the severity of drought on housing and residential land prices in the Middle East and North Africa (MENA) region. Our study addresses this gap in the literature. We extend the growing literature on the socio-economic consequences of climate change by examining the effect of meteorological factors on housing and residential land prices in Iran. Our hypothesis is motivated by findings of studies, which argue that higher housing values are associated with better amenities such as environmental improvement (Polinsky and Rubinfeld 1977; Roback 1982; Ho and Hite 2008; Huang et al 2015; Galinato and Tantihkarnchana 2018)

Objectives

Results

Conclusion