Thursday 1 September 2011

Disentangling economic and environmental NIMBYism is hard

As Gabriel Ahlfeldt of the LSE says, people oppose new developments in their local area for all sorts of reasons, and disentangling these can be difficult. In particular, people might use the rhetoric of environmental concern to dress up a more nakedly economic interest in the value of their own property. He highlights his recent research which supports this, having found that homeowners in Germany were more concerned than renters about the impact of aircraft noise from the proposed construction of a nearby airport.

This is evidence for the homevoter hypothesis that homeowners have a strong interest in preserving the value of their home, while renters have an interest in driving down rents, on top of any environmental concerns they might share*.

More broadly, I think the way economic and environmental concerns overlap for homeowners goes a long way to explain the strength of some opposition to new housing supply. Because house prices depend to a large extent on local environmental quality ('amenity'), new supply that is large enough to change the perceived quality of the local environment for the worse will have a double impact on house prices - first the direct effect of more supply, and then the indirect effect of amenity change. In economic terms, the direct effect shifts the supply curve outwards (lowering price), while the indirect effect shifts the demand curve inwards (lowering it even more). The combined effect on prices could be very large, so it's no wonder that some homeowners are so vehemently opposed to new housing supply in their area.

*Though I'd be interested to see if there was any way to separate out other ways in which homeowners might differ from renters, for example whether they see themselves as committed long-term to the area or just 'passing through'. If renters are less likely to see themselves staying in an area for a long time, we might expect them to care less about the impact of a new airport and that might skew the results somewhat.

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