The effect of the expansion of Lelystad Airport on house prices Master Thesis Faculty of Economics en Business MSc Finance - Specialization Finance and Real Estate Finance Author Kristie Lek (10662022) Supervisor Dr. F.P.W. Schilder Amsterdam, 1 July 2018 Statement of Originality This document is written by Kristie Lek who declares to take full responsibility for the contents of this document: I declare that the text and the work presented in this document are original and that no sources other than those mentioned in the text and its references have been used in creating it. The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents. Master thesis Kristie Lek – The effect of the expansion of Lelystad Airport on house prices 1 Acknowledgements Writing this thesis would not have been possible without the support of several people. I would therefore like to express my gratitude to them. I would like to thank my supervisor dr. F.P.W. Schilder, who was very helpful with his quick feedback and offered support and guidance in the entire process. I would also like to thank the Dutch Association of Realtors (NVM) for providing all necessary data and making an exception for this research to include slightly more municipalities in the dataset. Special thanks to my parents, who have always been there for me during the years of my studies. Master thesis Kristie Lek – The effect of the expansion of Lelystad Airport on house prices 2 Abstract This paper examines the effect of the expansion of Lelystad Airport and the changing flight routes regarding the expansion on house prices. The paper focusses on two different announcements of flight routes in the years 2007 and 2012. The effects are tested using data from the Dutch Association of Realtors from the year 2004 up until 2017. A difference-in- difference model is constructed and different variables of interest are created to be able to investigate both the overall effect and the effect of the different flight routes. The overall effect of the expansion of Lelystad Airport on house prices is -0.89 percent. This is equal to €2188 with an average transaction price of €246,148. When examining the effects of the different announcements, both announcements show negative and significant effects of -1.48 percent and -2.15 percent respectively. No conclusion can be drawn regarding the effect of the second announcement on houses below the flight route of the first announcement. Apart from that, the effect is also investigated for different altitudes and the results are +1.32 percent for altitudes below 1800, -5.21 percent for altitudes between 1800 and 2700 meters and -7.49 percent for altitudes of 2700 or more. Master thesis Kristie Lek – The effect of the expansion of Lelystad Airport on house prices 3 Table of Contents 1. Introduction ....................................................................................................................................... 5 2. Literature Review ............................................................................................................................. 8 2.1 House Price Models ..................................................................................................................... 8 2.2 Behavioral Economics ................................................................................................................ 9 2.2.1 Behavioral Finance ............................................................................................................. 10 2.2.2 Announcement Effects ........................................................................................................ 11 2.3 Related Literature ..................................................................................................................... 13 2.4 Flight Routes.............................................................................................................................. 15 2.5 Hypotheses ................................................................................................................................. 19 3. Methodology .................................................................................................................................... 21 3.1 Method ....................................................................................................................................... 21 3.2 Variables .................................................................................................................................... 23 3.2.1 Dependent Variable ............................................................................................................. 24 3.2.2 Variables of Interest ............................................................................................................ 24 3.2.3 Control Variables ................................................................................................................ 26 3.2.4 Fixed Effects ....................................................................................................................... 27 4. Data and Descriptive Statistics ...................................................................................................... 28 5. Results .............................................................................................................................................. 32 5.1 Effect of expanding Lelystad Airport ...................................................................................... 32 5.2 Effects of the different flight routes ......................................................................................... 35 5.3 Effects of different altitudes ..................................................................................................... 36 6. Robustness Checks .......................................................................................................................... 39 7. Conclusion ....................................................................................................................................... 41 8. Discussion and Limitations ............................................................................................................ 44 8.1 Discussion and implications ..................................................................................................... 44 8.2 Limitations ................................................................................................................................. 45 9. Reference list ................................................................................................................................... 46 10. Appendix ........................................................................................................................................ 50 Appendix 1 – Zip Codes ................................................................................................................. 50 Appendix 2 – Variables .................................................................................................................. 53 Appendix 3 – Regression Results ................................................................................................... 55 Appendix 4 – Robustness Results .................................................................................................. 57 Master thesis Kristie Lek – The effect of the expansion of Lelystad Airport on house prices 4 1. Introduction Schiphol Airport is one of the world’s busiest airports. According to Business Insider, it is the 11th busiest airport in the world and the 3rd busiest in Europe, with 68,515,425 passengers in 2017 (Business Insider, 2018). The increased popularity of flight vacations is making it extremely difficult for Schiphol to cope with the demand for flights. To be able to keep, and possibly strengthen, the economic function of Schiphol, it is decided to expand the smaller, regional airports. One of these regional airports is Lelystad Airport; a small airport close to Amsterdam. This airport used to facilitate business flights only, but because of the expansion Lelystad Airport is going to take over part of the (holiday) flights from Schiphol Airport. The expansion is going to be implemented in two phases. During the first phase, the number of aircraft movements will increase to 25.000 per year. In the final phase, the number of aircraft movements per year will increase to 45.000 (Lelystad Airport, 2018). There is a lot of critique on this decision. Inhabitants in the surrounding cities are afraid of noise, as the airport will be open from 6.00h till 23.00h with the possibility to extend this to midnight as explained by Omroep Flevoland (2015). Furthermore, the planes will be flying at a height of approximately 600 meters close to Almere, one of the bigger cities in the Netherlands. The planes have to fly at a low altitude (at approximately 1800 meters) in the Flevoland province because they would hinder air traffic from Schiphol Airport if they would fly higher. They are only allowed to climb higher after they have left the Flevoland province, but they have to remain low for the greater part of the flight routes over the Netherlands. Many people are worried that this will lead to too much noise in the provinces of Friesland, Groningen, Drenthe, Gelderland, Overijssel and Flevoland as these provinces will be part of the flight routes. The housing market in the area surrounding the airport is booming.