Does urban overheating affect neighborhood attractiveness? Evidence from the French housing market

Abstract

This article examines the relationship between urban overheating and housing prices, positioning urban overheating as an environmental dis-amenity with direct implications for the quality of life and health of urban residents. By reducing the attractiveness of affected neighborhoods, urban overheating is expected to negatively affect housing prices. A key contribution of this study is the use of the original micro-climatic Thermocity dataset, which provides high-resolution nighttime land surface temperature data derived from satellite observations over a set of four French urban areas. Housing data are sourced from an exhaustive dataset of housing transactions for the period 2013–2019, which provides detailed information on housing prices and characteristics. To address the potential endogeneity of local urban overheating, an instrumental variable approach is employed, leveraging wind speed as an instrument for land surface temperature. Results from the 2SLS estimation reveal a significant negative effect of urban overheating on housing prices: a 1 °C increase in urban overheating is associated with a 2.2% decrease in housing prices. Moreover, the analysis highlights substantial variations in the effect across urban units considered in this study. The robustness of these results is confirmed using alternative measures of urban overheating from other data sources.