Does Air Quality Matter? Evidence from the Housing Market

We exploit the structure of the Clean Air Act to provide new evidence on the capitalization of total suspended particulates (TSPs) air pollution into housing values. This legislation imposes strict regulations on polluters in “nonattainment” counties, which are defined by concentrations of TSPs that exceed a federally set ceiling. TSPs nonattainment status is associated with large reductions in TSPs pollution and increases in county‐level housing prices. When nonattainment status is used as an instrumental variable for TSPs, we find that the elasticity of housing values with respect to particulates concentrations ranges from −0.20 to −0.35. These estimates of the average marginal willingness to pay for clean…