Working Paper Series,
Uppsala University, Department of Economics

Abstract: This study estimates the impact of the non-aesthetic view and odor caused by Preemraff, a refinery on the Swedish west coast, on house values in the surrounding area. To carry out the analysis a spatial hedonic house price model was applied to transaction data for the period 1994 - 1996, enriched with information whether Preemraff was visible or not from the property. The results indicate that house prices increase as distance to Preemraff increases, but that the effect is small. The estimated price elasticity with respect to distance in the direction the prevailing wind blows is 0.071 and 0.162 in the opposite direction. This suggests that there is an effect of the odor on house prices, though the magnitude of the effect is small. Further estimates indicate that the negative effect of a view of Preemraff from a house is relatively strong in the proximity of the refinery, -24.6 % at a distance of 1000 meters. However, at larger distances the visibility of Preemraff declines and already 2000 meters from Preemraff the positive effect ofhaving a view overshadows the negative effect of the visible refinery. The estimates also imply that the premium for a sea front in a parish non-adjacent to Preemraff is about 139.6 % whereas in an adjacent parish the premium is 47.7 %. The corresponding premiums for a sea view are 69.0 % and 23.7 %.

Keywords: Refinery; hedonic house price model; spatial correlation; heterogeneous directional effects

JEL-codes: Q51; Q53

28 pages, June 29, 2009

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