Capitalization of environmental change: Road noise trajectories and housing prices

Transportation noise is a disamenity that is often capitalized into home prices, but standard hedonic models typically condition on noise levels at a single point in time. Housing markets may also respond to the trajectory of noise exposure that leads to those levels. We propose a two-dimensional classification framework that distinguishes both net outcomes (improvement vs. deterioration) and temporal patterns, while accounting for spatial dependence and using a generalized difference-in-differences estimation approach for generating causal effects. Using three versions of noise maps (2012, 2017, 2022) from Warsaw, Poland that we link to more than 168,000 apartment sales, we find that noise improvements are capitalized into significant price premia that vary by trajectory type. Improvements sustained over the entire decade (locations whose noise level falls on each successive map) command the largest house price premia of 2.6–3.9%, while locations that experience interruptions or partial reversals along the way realize smaller premia of 1.5–1.8%. Moreover, the implied per-decibel capitalization rate is roughly 50% larger for persistent improvements than for improvements arriving only late in the decade (0.50% vs. 0.33%), suggesting that housing markets value demonstrated persistence over and above the most recent noise conditions. Noise deterioration effects are statistically insignificant in the spatial error model, consistent with both spatial confounding and limited statistical power, and suggesting that standard hedonic estimates may overstate deterioration effects when spatial dependence is ignored.