Valuing the environmental benefits of canals using house prices

The canal and waterway network in Britain provides a potentially valuable recreational and environmental amenity. In this paper, we estimate the value of this amenity based on how much households are willing to pay through housing to live close to the canal network, a well-establishedand theoretically grounded method in the urban and environmental economics literature. To deal with potential omitted confounding factors in our house price regressions we adopt two strategies. First we conduct a cross-sectional analysis, but control for local area fixed effects so we estimate from marginal differences in distance from homes to canals within small geographical neighbourhoods. Secondly, we apply a difference in difference method to analyse the effect of the restoration of the Droitwich canals in the later 2000s. Both methods yield similar conclusions. There is a price premium for living close to a canal, but this is very localised – around 3.4% in 2016 within 100m and zero beyond that. The implication is that the effect is driven predominantly by canal-side properties and others with a direct outlook on the canals or immediate access. The premium fell substantially from the pre-recession to post recession periods. We also find evidence that canal-side locations are attractive for developers, with a much higher proportion of new-build sales within 100m of canals relative to elsewhere - a 5.9% increase on a 7.8% baseline. Some back of the envelope calculations indicate the land value uplift from the canal network was around £0.8-£0.9 billion in 2016.