The changing face of environmental amenities: Heterogeneity across housing submarkets and time

Abstract

The value of environmental amenities has been studied for decades in the hedonic housing prices literature. Numerous studies have found that amenities such as marine, river and woodland habitats, national and regional reserves, urban parks, or wetlands contribute positively on the formation of housing prices. Work is scarce when considering heterogeneity across submarkets and time. Auckland, New Zealand’s largest city, has a unique landscape with open spaces, waterways, coastal areas and volcanic features. Local housing market is highly segmented and the city has gone through a bust, recovery and boom cycle in the last decade. This paper incorporates heterogeneity across submarkets and time, and examines how they affect the capitalisation of amenities into housing prices. We construct a dataset of about 280 thousand sale transactions between 2000 and 2016 in Auckland and estimate hedonic models based on unconditional quantile regressions. We find diverse capitalisation patterns across housing submarkets. Beaches may add price premiums of 5.1% in houses in the upper-end of the distribution, but also price discounts of 2.1% in houses in the lower-end of the distribution. We use a detailed categorisation of parks and find that volcanic parks may add premiums for houses in the 70% percentile and above of the price distribution, but also imply price discounts values for houses around the median price and below. We argue that the differing effects occur because of trade-offs between regulations to protect amenities and the ecosystem services they provide, conditional to specifics of the location of houses.