Air pollution matters - Quantifying the value of air quality in investment decisions

Knowledge of emission sources is essential to take measures in time to mitigate the subsequent effects on health and the environment. In general terms, substances that are harmful to health and the environment are called air pollutants. The World Health Organization (WHO 2022b) estimated ~ 37.000 premature deaths related to ambient air pollution in Germany in 2016. Air pollution is a concern for everyone, but its effects are not compensated, and the originator is not required to cover the costs. Several methods have been developed to determine these costs. In the context of air pollution, the revealed-preference method is considered as it "involves determining the value that consumers hold for an environmental good by observing their purchase of goods in the market that directly – or indirectly – relate to environmental quality". Based on a semiparametric hedonic regression this paper evaluates the impact of air quality on the asking rents in Berlin between 2018 and 2021. The rental income of apartments located in areas with low pollution was 2% higher than market average. Assets in areas with high pollution were offered at a discount between –2% and -6% in comparison with average assets.