Renewable energy and negative externalities: the effect of wind turbines on house prices

Renewable energy and negative externalities: the effect of wind turbines on house prices

By Martijn Dröes* and Hans Koster

[click here for a Dutch version of this blog]

Households are in general not in favour of having wind turbines in the vicinity of their property: wind turbines may cast shadows, and imply noise and visual pollution. However, in the Netherlands the goal set by the Renewable Energy Directive is to increase the share of renewable energy to 14 percent, which implies the construction of 1,300 onshore wind turbines in the next years. House owners in particular are very concerned that these wind turbines may imply huge losses in their property values. It has been argued that these negative effects can as high as € 50.000 thousand per house. There is, however, little empirical evidence that supports the claim that negative effects of wind turbines exist and are substantial.

In a recent study, it appears that after the construction of a wind turbine, housing values are indeed decreasing within a two kilometer radius of the wind turbine. Anticipation effects are important: already two to three years before the wind turbine becomes operational negative values on housing values are detected. Larger wind turbines imply an additional negative effect on house prices: the effect may then become twice as large. In the study, data on more than two million housing transactions between 1985 and 2011 are used. The data are obtained from the NVM (a Dutch realtor organisation). For almost 80,000 properties, a wind turbine has been constructed within a two kilometer radius. Due to construction of a wind turbine in the vicinity, housing values decrease with on average 1.4% to 2.3%, if we compare the affected properties with comparable properties that did not experience the placement of a  wind turbine. It is, however, striking that only the first wind turbine seems to have a price  effect: a second or third wind turbine does not seem to imply additional decreases in house prices.

The total estimated loss in housing values is at least € 403 million, but may increase to € 1.2 billion if we take the upper-bound effect and also take the effect on rental properties into account. It appears that the external CO2 benefits by wind turbines are in a similar order of magnitude as the loss in housing values. The loss per property is between € 3,500 and € 5,600. The external costs in terms of the decrease in housing values are at least 10 percent of the construction costs of wind turbines. Policy makers, municipalities, but also owners of wind turbines (which are usually large energy companies) should take into account that wind turbines imply additional (social) costs if they are constructed near residential properties.

* Martijn Dröes is an assistant professor at the Department of Finance, Faculty of Economics and Business, at the University of Amsterdam. He is also fellow of the Amsterdam School of Real Estate and associated with the Department of Spatial Economics, VU University Amsterdam.