Estimating the Effect of High-Rise Office Buildings on Residential Property Values

Abstract

The relationship between residential property values and nonconforming land uses is of interest to real estate academicians and practitioners alike. For some time, urban economists have tried to measure the negative externality costs and the amenity benefits associated with nonresidential land uses. Urban planners and city officials have also been concerned with the relationship between nonconforming land uses and the potential for visual intrusion, increased traffic congestion, and other negative externalities. Indeed, the potential for negative externalities has often been cited in public hearings and municipal planning departments as a primary reason for the establishment of zoning districts. Such public debates are frequently fueled more by emotion and misinformation than they are by statistical evidence. City officials in Dallas, Texas, for example, recently agreed to make land-use regulations more restrictive partially in response to homeowners' complaints that high-rise office buildings have a significant negative impact on nearby residential property values. The prior cumulative zoning ordinance' permitted high-rise buildings (of up to eleven stories) in districts zoned for shopping centers (which are typically less than three stories). The new zoning law prohibits high-rise office properties in shopping center districts. This paper employs the hedonic estimation technique to estimate the effect that one high-rise office building has had on the value of nearby houses in a small residential area of North Dallas. In 1980, construction was completed on an eleven-story,