An Estimation of the Coastal Premium for Residential Housing Prices in San Diego County

Stephen J. Conroy and Jennifer L. Milosch

Online First™, 24 July 2009

Abstract

The authors attempt to estimate the “coastal premium”—additional value conferred on a residence from being located near the coast—of single family homes in San Diego County, while controlling for other locational and structural characteristics. A previous investigation published in 2001 for south Orange County found that moving away from the coast by one mile was associated with a 42,000 lower housing price. Intrigued by this finding, we investigate whether (a) a similar coastal premium exists for all of San Diego County and (b) the premium varies by incremental distance from the coast (e.g., for 500-feet increments). Using data from 9,755 San Diego County home sales in 2006, results presented here suggest that for a median-priced home (42,000lowerhousingprice.Intriguedbythisfinding,weinvestigatewhether(a)asimilarcoastalpremiumexistsforallofSanDiegoCountyand(b)thepremiumvariesbyincrementaldistancefromthecoast(e.g.,for500−feetincrements).Usingdatafrom9,755SanDiegoCountyhomesalesin2006,resultspresentedheresuggestthatforamedian−pricedhome( 540,000) at the mean distance from the coast (approximately 9 miles—and considerably farther than the Orange County estimate) a one-mile increase in distance from the coast would reduce the sale price by approximately $8,680. Specifying by specific distance increments, we find that the coastal premium is approximately 101.9% for houses within 500 feet of the coast (i.e., their value is 101.9% higher than similar homes located beyond six miles of the coast), falling to 62.8% for homes between 500 and 1,000 feet, declining to approximately 3.3% for homes located between five and six miles of the coast, disappearing entirely beyond around six miles. Since average comparisons of the sort initially considered in this analysis can be very misleading, researchers should consider the nonlinear incremental distance effects in model specifications.Keywords  Coastal premium - Hedonic model - San Diego - Housing prices - California housing

JEL Classification  R21 - Q31

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