Panel Paper: An Elephant in the Room: Early Impacts of Large Urban Projects on Real Estate Prices

Friday, July 20, 2018
Building 3, Room 208 (ITAM)

*Names in bold indicate Presenter

Pablo T. Benlliure Bilbao1, Alfonso Leyva Garrido1, Johabed G. Olvera2, Julio Alberto Ramos Pastrana2 and Pedro L. Ramos Pastrana1, (1)UNAM, (2)Indiana University

Large urban scale projects are recognized to be fundamental in urban development. However, empirical evidence on how this kind of projects affects real estate dynamics is lacking. This research aims to provide empirical evidence on how the announcement of the construction of the new international airport for Mexico City affected real estate market values in the metropolitan area of the Valley of Mexico. Through the support of the Lincoln Institute of Land Policy, we collected economic and geographical information about real estate market offers in the metropolitan area of the Valley of Mexico for three different time periods before and after the announcement of the airport. We take advantage of the longitudinal structure of the data to estimate the effect of interest using two different identification strategies. Firstly, we use a simple Difference in Differences identification strategy to compare a representative sample of neighborhoods with the same trend in market values for the last 10 years. Secondly, taking advantage of the fact that the location of the airport is exogenous to real estate market values, we use a two-way fixed effects model to identify the effect of being adjacent to the airport. Our results indicate that the announcement of the airport decreases real estate market prices of products being sold close to the location of the new airport. On the other hand, the announcement of the airport increased leasing prices in the area adjacent to where the airport will be located.