Does air pollution feature lower housing price in Canada?

Abstract

The purpose of this study is to analyze the pollution-housing price relationship within a Canadian context, with a special focus on the effects of particular matter 2.5 (PM[subscript 2.5]) in terms of air pollution. The objective is important because environmental quality acts as a relatively less tangible characteristic to housing compared with other physical characteristics (such as number of bedrooms), but it has its own implicit price. Once we make explicit the implicit cost of air contaminant, it will guide public policy decisions on the measures that should be taken to reduce air pollution. This study examines the subject between 1997 and 2013 across Canada’s benchmark cities. In order to provide an accurate analysis, two types of housing price index data are used: CANSIM New Housing Price Index (NHPI) and Teranet-National Bank Housing Price Index (THPI). PM[subscript 2.5] is employed as the proxy of air pollution and the data are collected from Environment Canada. First difference, lagged values, fixed effect and random effect models are the methods being used to produce an accurate and robust analysis. As a result, as this study improves the specifications with better HPI (which is THPI), the negative association between housing prices and air pollution surfaces. The results from the specifications that applied first-difference, logarithmic function, year dummies and fixed effects or random effects methods, suggest that air pollution has a negative effect on housing prices with a two-year lag.