Industrial Land Use, Externalities, and Residential Location

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Abstract
Studies using individual housing units as the observation base have not supported the hypothesis that certain nonresidential land uses have a negative impact on housing values. Basically, externalities associated with these land uses have very localized effects. Other studies, using municipalities as the observation base, have found that nonresidential land uses do reduce housing values, and suggest that there may be municipality-wide or nonlocalized externality effects. This paper extends these analyses, of nonlocalized externality effects and test the hypothesis that residential locational choice is also affected by the nonlocalized nature of externalities associated with nonresidential land use, distinguishing between the localized versus nonlocalized externalities associated with industrial land use. An empirical model is used to test this hypothesis. The results show that the concentration of industrial activity has a positive effect on housing values but that municipalities with major air polluting industries have significantly lower housing values. This suggests that the type of industrial activity, especially in relation to the type of externalities being generated, as well as the concentration of activity should be included in models determining the effectiveness of zoning.