Ten percent NO2 increase lowers Madrid house prices by 0.65 percent
A 10 percent increase in nitrogen dioxide pollution reduces Madrid housing prices by 0.65 percent, or about 1,327 euros for the average home, according to a Banco de España working paper. The study uses thermal inversions as an instrumental variable across 106,449 transactions from 2014 to 2020.
Thermal inversions isolate clean air premium
Using 106,449 property transactions in Madrid between 2014 and 2020, author Marina Gómez-García estimates how nitrogen dioxide levels affect residential real estate values.
To overcome endogeneity from local economic density or transport infrastructure, the study isolates exogenous pollution spikes caused by thermal inversions, where warm air traps pollutants near the ground.
The baseline findings show that a 10 percent increase in air pollution leads to an immediate 0.65 percent drop in housing prices.
Buyers evaluating long-term air quality show heightened sensitivity: persistent 10 percent pollution increases over six and nine months reduce property prices by 0.99 percent and 1.25 percent, representing price drops of up to 5,922 euros for an average home.
Affluence and demographics amplify price drops
The paper highlights significant non-linearities and demographic disparities across Madrid.
Price discounts occur almost exclusively in areas with above-average pollution levels.
High-income and highly educated neighborhoods capitalize pollution at twice the rate of lower-tier districts (-0.091 percent versus -0.047 percent).
Neighborhoods with more children aged 0 to 14 also show steeper price declines.
Furthermore, a 1 percent pollution surge above the mean depresses transaction volume by 3.19 percent as buyers delay purchases.
Clean air traded as a luxury amenity
The study successfully quantifies the real estate penalty of urban air pollution.
Yet because price sensitivity is concentrated in wealthy areas, clean air is traded as a luxury amenity rather than a baseline right.
Urban planners must address this disparity before environmental factors deepen socio-economic segregation.