Quality Effects of Investment Projects and Their Effect on Current House Prices: Application of Hedonic Pricing Approach

Abstract

By virtue of their nature, all sorts of investment projects pose environmental disamenities like disfiguration of the natural scene, congestion, noise and pollution of different types. The study is framed to examine environmental impacts of investment projects (Hansom Glass Factory) and their effects on houses transaction values in Adama town (Picock area). Estimation of such negative impacts on current house values, which is reflected as a proxy estimation of distance from the project, was measured using a Hedonic Pricing Approach. Data on current values of residential houses in Adama town (Picock) were taken considering residences residing up to 2300 meters away from the factory for the year 2015. Data were generated for 170 houses at random that reside to the West and South-West directions of Hansom Glass Factory. A Hedonic Price Function was employed for analyzing the data using STATA(11). The study came up with that many of the hypothesized variables significantly affected house transaction prices at different levels of probability (P<0.001 and P<0.05). The result revealed that residential houses that reside bordering the factory were valued less significantly than their equivalents built away from the factory. Positioning investment projects (industrial parks) explicitly at periphery of towns can avoid coincidence of investment externalities with societal, environmental and economic welfare.  To minimize externalities investment projects, emerging cities and towns should develop inclusive master plans forecasts that explicitly identifies future land use for future development agendas. In addition, there should be multidimensional environmental and social impact assessment carried out be external experts before implementation of such projects.

Keywords: Hedonic pricing, Industrial parks, House values, Externality

DOI: 10.7176/JESD/12-9-03

Publication date:May 31^st 2021