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The impact of air pollution on the housing market: The case of Madrid

Author

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  • Marina Gómez-García

    (Universidad Autónoma de Madrid and Banco de España)

Abstract

This paper estimates the causal impact of air pollution on housing prices in Madrid, a large European city with relatively high and persistent nitrogen dioxide (NO2) concentrations and a home ownership rate of around 70%. Using location-specific data on pollution levels and the universe of housing transactions, my estimation controls for house and neighborhood characteristics, year and neighborhood fixed effects, a bad weather index and a set of time-varying neighborhood characteristics. To address endogeneity concerns, I make use of quasi-experimental variation in nitrogen dioxide levels resulting from temperature inversions. The results suggest that a 10% increase in air pollution reduces housing prices by 0.65% (around €1,327 for the average house). This effect is robust to alternative measures of air pollution, different bad weather indices and the inclusion of seasonality dummies, and is highly non-linear, being larger for higher levels of pollution.

Suggested Citation

  • Marina Gómez-García, 2026. "The impact of air pollution on the housing market: The case of Madrid," Working Papers 2624, Banco de España.
    • Handle: RePEc:bde:wpaper:2624e
    DOI: https://doi.org/10.53479/44185
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    Keywords

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    JEL classification:

    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects

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