Valuation of Noise Pollution and Abatement Policy: Evidence from the Minneapolis-St. Paul International Airport

Abstract

Noise pollution has been shown to impact physical and mental health, and changes in air traffic over densely populated residential areas is an important contributor to this health risk. Albeit significant endogeneity concerns, hedonic models of house sale prices are typically used to quantify the losses that are capitalized into home values resulting from these adverse noise effects. We break new ground on this subject by disentangling the causal impacts of noise on house prices via a novel identification strategy that relies on changes in the exogenously determined noise abatement eligibility of Minneapolis homes. Combining a rich panel dataset of repeat sales with aircraft noise exposure of properties surrounding the Minneapolis-Saint Paul (MSP) International Airport, we identify the causal noise effects on home values that are abatement eligible from those that are ineligible based on two soundproofing initiatives between 1990 and 2014. We find robust evidence that aircraft noise persistently and significantly reduces the rate of appreciation of abatement ineligible homes by approximately two percentage points per decibel over three years prior to a property's sale, while the effect on eligible homes is fully mitigated. Based on our estimates, we approximate the average losses to owners of abatement ineligible homes around $25,000 per sale and find that the return on abatement investments could be as a high as 40% near MSP.