Residents’ perceived environmental quality as a determinant of hotel prices: evidence from a major urban tourism destination

Understanding how residents’ perceived environmental quality influences hotel prices is crucial for urban planning, while contributing to the hedonic pricing literature by showing how subjective perceptions are capitalised into prices. This study examines how residents’ main urban concerns, such as air pollution, traffic congestion, and dirtiness, affect hotel room rates in Madrid. Using over 130,000 daily prices from 309 hotels across 17 months, the analysis combines Two-Way Fixed Effects (TWFE) and Panel Quantile Regression with Fixed Effects (PQFE) to capture average and distributional pricing effects. The findings show that higher concern about traffic congestion and air pollution is associated with lower hotel prices, particularly in luxury accommodations, while perceived dirtiness mainly affects budget hotels. These results highlight varying environmental impacts across segments and emphasise the value of residents’ perceptions. Within the Pressure-State-Response framework, residents represent a vital ‘state’ component of the tourism system as their perceptions reflect socially experienced environmental conditions and capture dimensions of quality that extend beyond objective indicators. Grounded in these perceptions and destination image co-creation, residents are conceptualised as key stakeholders whose evaluations shape perceived quality and inform pricing and policy responses.