Measuring the Impact of Church Externalities on House Prices

Abstract

The notion of “externalities” is a useful concept developed in welfare economics. In real estate parlance, the notion states that external factors could impact on property value positively or negatively (Appraisal Institute, 2008; Do et al., 1994). Because of its physical immobility, real estate tends to be affected by externalities more strongly than most other economic goods, services, or commodities. Ascertaining the effects of externalities on property values provide a very strong test of the nuisance versus amenities effects. If an externality is truly a nuisance, then values of properties within close range will be adversely affected in proportion to the distance from it. If on the other hand an externality is an amenity, then property value will increase the closer a property is located to it. In this regard, location of churches within residential neighborhoods has been a subject of concern and a controversial issue in several jurisdictions.