Renewable Energy and Negative Externalities: The effect of wind turbines on house prices

The authors of this paper examine the impacts of siting turbines on nearby housing prices. The summary and conclusion of the paper are provided below. The full paper can be accessed by selecting the document links on this page.

SUMMARY ― In many countries, wind turbines are constructed as part of a strategy to reduce the dependence on fossil fuels. In this paper, we measure the effect of wind turbines on the transaction prices of nearby properties. Using a unique microdataset from the Netherlands from 1985‐2011, we exploit temporal variation in the location of wind turbines. The results show that after the first wind turbine is constructed within a 2 km radius of a property, the value of the property decreases by about 1.4 percent on average. We argue that this is mainly a view effect. We also find that anticipation and adjustment effects are important and that the total social costs of wind turbines are substantial.

CONCLUSION ― This paper has investigated the effect of wind turbines on house prices. The results show a pronounced negative effect of the construction of a wind turbine on house prices of about 1.4 percent on average within a 2km radius. The negative effect ranges from 1.4 to 2.6 percent, depending on the distance to the turbine. We also show that anticipation effects are important: house prices start to decrease about 2 years before the completion of a nearby wind turbine. The negative effect eventually levels out at about 2 percent.

Our results indicate that the effect of wind turbines on house prices is an extremely local effect. This implies that the effect on house prices can be avoided by constructing wind turbines further away from urbanized areas. Our results do not suggest that wind turbines should not be constructed on land, but that policy makers and wind turbine owners should take account the external economic costs of wind turbines as is reflected in nearby property values.

A particular concern is whether there are viable alternatives. Building wind turbines at sea, for instance, is still very costly. That being said, it might be that the external costs of onshore wind turbines outweighs the additional costs of building wind turbines at sea. Another option would be to coordinate the placement of wind turbines not at a national level, but a supranational one. Currently, each European country has to arrange the increase in renewable energy itself. Why not buy green energy, created by wind turbines located at places (countries) where both the opportunity cost and the effect of externalities is lowest (outsourcing)? Another initiative that is currently being used in the Netherlands is that homeowners can become a shareholder of a wind turbine. This can potentially increase the societal support for the placement of wind turbines. It can partly compensate homeowners for the loss in house value and potentially decrease the ‘not in my backyard’ mentality.

Finally, it is important to recognize that many wind turbines are placed in rural areas. This, however, does not mean that such turbines have no external economic effects. Since wind turbines are an asset for a land owner it potentially increases the value of the land on which the turbine is placed. In addition, the value of nearby land is expected to decrease since the option value of the land decreases (i.e. no houses can be constructed on nearby land). Future research should thus focus on the effect of wind turbines not only on house prices, but also on the value of (rural) land.

Renewable Energy And Negative Externalities 2014

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JUN 30 2014
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