Hedonic housing prices and environmental quality in Lebanon

Abstract

The authors apply a hedonic pricing approach using a unique data set from Lebanon. To account for non-linearities in pricing, the authors use three different functional regression forms for the hedonic model approach. The authors also deal with potential omitted variable bias by estimating a hedonic frontier specification.

Findings The authors find that, in all specifications, air pollution negatively and significantly affects housing prices. The estimated marginal willingness to pay for a one microgram per cubic meter change in particulate matter (PM10) concentration ranges between 2.88% and 3.18% of mean housing prices. The authors also provide evidence of a negative pricing gradient away from the city center, landing support for the monocentric urban development hypothesis.

Research limitations/implications Given the lack of a data set linking household socioeconomic characteristics with housing data, the authors only consider the first-stage hedonic model.

Practical implications The proposed hedonic pricing regression approximates a housing pricing equation that can be used by policymakers.

Social implications The findings suggest that pollution is a significant factor in household behavior in Lebanon.

Originality/value This paper adds to the scant literature studying the effects of air pollution on housing prices in developing countries. To the best of the authors’ knowledge, this is the first paper to study the impact of pollution on housing prices in a country in the Middle East and North Africa Region.