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Abstract:

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SERC/Urban and Spatial Programme Discussion Paper
Speed 2.0. Evaluating Access to Universal Digital Highways
Gabriel M. Ahlfeldt, Pantelis Koutroumpis and Tommaso Valletti
July 2014
Paper No' SERCDP0161:
Full Paper (pdf)

JEL Classification: L1; H4; R2


Tags: internet; property prices; capitalization; digital speed; universal access to broadband

This paper shows that having access to a fast Internet connection is an important determinant of capitalization effects in property markets. We combine microdata on property prices in England between 1995 and 2010 with local availability of Internet broadband connections. Rich variation in Internet speed over space and time allows us to estimate the causal effect of broadband speed on property prices. We find a significantly positive effect, but diminishing returns to speed. Our results imply that an upgrade from narrowband to a high-speed first generation broadband connection (offering Internet speed up to 8 Mbit/s) could increase the price of an average property by as much as 2.8%. A further increase to a faster connection (offering speeds up to 24 Mbit/s) leads to an incremental price effect of an additional 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.