Abstract

This paper explores the prices of three aesthetic externalities (a water view, the appearance of nearby improvements, and the quality of landscaping in the neighborhood). The focus is on how the implicit prices of such characteristics change with the residential real estate cycle. Residential sales for 1986 to 1996 from Auckland, Christchurch and Wellington are examined. The findings suggest that implicit prices of the aesthetic externalities move with the real estate cycle. The findings also indicate that the percentage premiums for water views are greatest in Christchurch, which has the smallest percentage of properties with water views, and lowest in Wellington, which has the highest percentage of properties with views. An understanding of the impacts of aesthetic externalities is important for the valuation of residential properties.This article is the winner of the Real Estate Valuation manuscript prize (sponsored by The Appraisal Institute) presented at the 2004 American Real Estate Society Annual Meeting.