Externalities Imposed on Residential Properties in Highly Urbanized Areas

Abstract

In highly industrialized areas open spaces such as farmland and nature are under pressure since urban areas are expanding at their expense. Because of the high opportunity costs of development in urban areas, a high price has to be paid for the maintenance or creation of o pen space. The question is if this high price can be justified by the value of the open space. We estimate the value residents att ach to surrounding open space in a hedonic pricing model. More specifically, we investigate in a highly urbanized area in the Netherlands how the externalities of farmland, nature, and other uses, such as industrial areas and the sea af fect residential property prices. Moreover, spatial lag and error dependence are corrected for in the hedonic pricing model used to estimate the value of open space and other externalities. According to our results premiums ar e paid by residents who buy properties close to urban parks a nd the North Sea and for properties with views on open space.