Speed 2.0: Evaluating Access to Universal Digital Highways

Abstract

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 macro-economic 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 firstgeneration 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 passes a cost-benefit test in urban and some suburban areas, while the case for universal delivery in rural areas is not as strong.

Broadband's relationship to rural housing values

“…Slightly less than half (45%) of the homes surveyed did not have Internet access available to them, and roughly 80% were seasonal homes. The simple hedonic model suggested that Internet access increased the average value of seasonal property by 2.7%, which is in line with the estimates from Molnar et al (2015) and Ahlfeldt et al (2014).…”

“…Similar work by Ahlfeldt, Koutroumpis, and Valletti (2014) uses property prices from England between 1995 and 2010 to suggest that upgrading from a dial-up connection to an 8 MBPS connection increases the property value by 2.8%. They also attempt a cost-benefit analysis and find that, as expected, rural areas are the most problematic.…”

Home Is Where the Internet Is? High-speed Internet’s Impact on Rural Housing Values

“…Using a hedonic model and survey responses ( n = 225) meshed with county assessor information, they found that the average value of seasonal property with Internet access increased by 2.7 percent when compared to seasonal homes without Internet access. This estimate is similar to the estimates from Molnar, Savage, and Sicker (2015) and Ahlfeldt, Koutroumpis, and Valletti (2014).…”

“…The literature exploring the relationship between housing values and high-speed Internet connection is relatively sparse, although several studies do focus explicitly on this question. Using fifteen years (1995–2010) of property prices in England, Ahlfeldt, Koutroumpis, and Valletti (2014) suggest that upgrading to an 8 Mbps connection from dial-up increases the property value by 2.8 percent. Their cost-benefit analysis found that rural areas were problematic—namely, that the estimated benefits from a potential speed upgrade would only account for around 15 percent of the associated costs of implementing the infrastructure.…”

The economic impact of broadband: Evidence from OECD countries

“…This estimate is remarkably close to Goolsbee and Klenow (2006) given that US population in 2006 was approximately 300m and of these 60% were internet users. Other papers by Rosston et al (2011) and Ahlfeldt et al (2016) also find significant effects on consumer surplus from internet access that increase with service quality (speed and reliability).…”