Impact of Broadband on Property Values

NAR Library Reference Request
July 17, 2019

Scholarly research

Ahlfeldt, G., Koutroumpis, P., & Valletti, T. (2017). Speed 2.0: Evaluating access to universal digital highways. Journal of the European Economic Association, 15(3), 586-625.

“This paper shows that having access to a fast Internet connection is an important determinant of capitalization effects in property markets. Our empirical strategy combines a boundary discontinuity design with controls for time-invariant effects and arbitrary macroeconomic shocks at a very local level to identify the causal effect of broadband speed on property prices from variation that is plausibly exogenous. Applying this strategy to a micro data set from England between 1995 and 2010 we find a significantly positive effect, but diminishing returns to speed. Our results imply that disconnecting an average property from a high-speed first-generation broadband connection (offering Internet speed up to 8 Mbit/s) would depreciate its value by 2.8%. In contrast, upgrading such a property to a faster connection (offering speeds up to 24 Mbit/s) would increase its value by no more than 1%. We decompose this effect by income and urbanization, finding considerable heterogeneity. These estimates are used to evaluate proposed plans to deliver fast broadband universally. We find that increasing speed and connecting unserved households pass a cost–benefit test in urban and some suburban areas, whereas the case for universal delivery in rural areas is not as strong.”

Deller, S., & Whitacre, B. (2018). Broadband’s relationship to rural housing values. Staff Paper Series 591, University of Wisconsin, Agricultural and Applied Economics.

“Using data for remote rural U.S. counties (n=887) we estimate the impact of broadband Internet access on median housing value. We account for spatial dependencies in the joint determination of investments in broadband access and housing values using a modified version of the feasible generalized spatial two stage least squares (FGS2SLS) estimator suggested by Kelejian and Prucha (1998). The data support the central hypothesis that remote rural housing values are positively impacted by higher access. Our estimates suggest that there are declining returns to speed availability, with access to at least some type of Internet being more valuable than having only a very high-speed connection accessible.

Lehr, W. H., Osorio, C., Gillett, S. E., & Sirbu, M. A. (2006). Measuring broadband’s economic impact. MIT Working Paper Series ESD-WP-2006-02. Massachusetts Institute of Technology.

“Does broadband matter to the economy? Numerous studies have focused on whether there is a digital divide, on regulatory impacts and investment incentives, and on the factors influencing where broadband is available. However, given how recently broadband has been adopted, little empirical research has investigated its economic impact. This paper presents estimates of the effect of broadband on a number of indicators of economic activity, including employment, wages, and industry mix, using a cross-sectional panel data set of communities (by zip code) across the United States. We match data from the FCC (Form 477) on broadband availability with demographic and other economic data from the US Population Censuses and Establishment Surveys. We find support for the conclusion that broadband positively affects economic activity in ways that are consistent with the qualitative stories told by broadband advocates. Even after controlling for community-level factors known to influence broadband availability and economic activity, we find that between 1998 and 2002, communities in which mass-market broadband was available by December 1999 experienced more rapid growth in (1) employment, (2) the number of businesses overall, and (3) businesses in IT-intensive sectors. In addition, the effect of broadband availability by 1999 can be observed in higher market rates for rental housing in 2000. We compare state-level with zip-code level analyses to highlight data aggregation problems, and discuss a number of analytic and data issues that bear on further measurements of broadband’s economic impact. This analysis is perforce preliminary because additional data and experience are needed to more accurately address this important question; however, the early results presented here suggest that the assumed (and oft-touted) economic impacts of broadband are both real and measurable.”

Molnar, G., Savage, S. J., & Sicker, D. C. (2019). High-speed Internet access and housing values. Applied Economics, 1-14.

“A hedonic model is estimated that relates house values to high-speed Internet access while controlling for the potential endogeneity of Internet access. Results show that single-family homes with access to a 25 Mbps broadband connection have a price that is about $5,977, or 3%, more than similar homes in neighborhoods with 1 Mbps. The rural premium is lower at $5,099. A cost-benefit exercise on the viability of rural broadband shows that demand will generally not support private investment, but that the revenue gap from upgrading legacy networks could be readily covered by the Universal Service Fund and other public subsidies.”

Molnar, G., Savage, S., & Sicker, D. (2013, August). The Impact of High-speed Broadband Availability on Real Estate Values: Evidence from United States Property Markets. TPRC 41: The 41st Research Conference on Communication, Information and Internet Policy.

“This working paper presents a study to show the possible impact of fiber-based broadband service availability on real estate values. The research goal is to find out whether people are willing to pay more for real estate located in areas where fiber is available than for a property that does not offer this amenity. Using information from the National Broadband Map and county assessors’ data for residential single-family houses from three Metropolitan Statistical Areas in the State of New York, we apply a hedonic pricing model to test the hypothesis. Early results suggest that fiber availability may indeed have a positive impact on real constant-quality house prices. Initial findings also urge additional research efforts to test the impact more thoroughly and to address issues due to potential endogeneity.”

Molnar, G., Savage, S., & Sicker, D. (2015). Reevaluating the broadband bonus: Evidence from neighborhood access to fiber and United States housing prices. University of Colorado at Boulder.

“We use the National Broadband Map and a nationwide sample of real estate transactions from 2011 to 2013 to empirically investigate the relationship between high-speed Internet service and housing prices. Estimates from a hedonic housing price model suggest that fiber-delivered Internet service may be beneficial to households in terms of increased speed and reliability of service. Single-family homes in census block groups (CBGs) with the ability to upgrade to a one gigabit per second Internet connection have a transaction price that is about 1.8 percent more than similar homes in neighborhoods where a 100 megabit per second connection is available. Controlling for speed, homes in CBGs where fiber is available have a price that is about 1.3 percent more than similar homes without fiber. When evaluated at the sample median house price, the combined effect of 3.1 percent suggests that access to fiber may be associated with about a $5,437 increase in the typical home’s value. This is roughly equivalent to a fireplace or just under half the value of a bathroom.”

Anecdotal Evidence

ISPReview. (2015, May 19). Survey finds UK house buyers rejecting homes with slow broadband.

“The latest survey of 2,119 readers has found that nearly three quarters (71.9%) of respondents would reject an otherwise ideal house if its broadband speeds were too slow, while 22.8% said they’d rather negotiate a lower price and only 5.1% weren’t at all bothered about Internet performance.”

Knutson, R. (2015, June 30). How fast internet affects home prices. Wall Street Journal.

“In May, Kara Burke and Tom Cairns thought they had found their ideal house: a nicely-updated older three-bedroom home in Worthington, Mass.

But they didn’t make an offer because it didn’t have high speed Internet.

“We wouldn’t choose a house that didn’t have electricity,” Ms. Burke, 26 years old, said as she explained why. “It’s right on par with those things.””

Picard, K. (2016, June 13). How does broadband access affect real estate property values? Seven Days Vermont.

“Those in the real estate business say that, depending on a property’s location, broadband access can make or break the deal. Though Streeter can’t put a dollar figure on the value of high-speed internet, she says, “Basically, if the house doesn’t have it, in my opinion, it is unlikely to sell.””