How Covid-19 has accentuated the need for quietness
In their working paper, Wang and Tu (2022) investigate how pandemic-induced phenomena such as working from home and e-commerce have impacted residents’ need for quietness
24 November 2022
Covid-19 triggered the massive implementation of remote working and accelerated the rise of e-commerce. Today, even as many economies worldwide have reopened and resumed normal activity, changes heralded by the pandemic look set to stay for the foreseeable future, entailing new considerations that urban planners would need to take into account.
In their working paper “Road traffic noise and additional housing rent premiums for quietness in the post-COVID-19 pandemic era”, Wang and Tu (2022) investigate how remote working during the pandemic has impacted residents’ need for quietness at home.
Through applying a difference-in-differences (DID) model on nearly 47,000 rental housing transactions in the public rental market in Singapore, the researchers found that tenants were willing to pay higher rent premiums for housing with less exposure to road traffic noise during 2020 to early 2022, when the population at large was still contending with the risks of widespread contagion.
Research hypotheses
Remote working during the pandemic meant that people were spending more time at home. Concurrently, as a result of social distancing regulations which restricted movement and interaction, e-commerce rapidly gained traction and home deliveries increased. In 2021, the annual gross merchandise volume of the e-commerce market in Singapore amounted to US$7.1 billion, and according to a local news report, a delivery man could make as many as 270 deliveries a day.
The impact of road traffic noise on residents therefore did not proportionally decrease, and given that workers were mostly based at home, tolerance for such a negative externality was expected to decrease.
The research hypotheses were therefore:
- Residents would value a quiet home more, giving rise to further rent discount on a noisy housing unit during the pandemic years; and
- Additional rent premium for a quiet home would increase in 2021 and early 2022, when it became clear that the persistence of Covid-19 meant that remote working was set to stay for the foreseeable future.
With the perception of working from home as a long-term arrangement, residents would now be more motivated to seek quietness as an essential hedonic attribute.
A homebuyer’s decision is determined by both investment and consumption motives, whereas a renter’s decision is determined by consumption motives only. In so far as noise affects housing decisions mainly through consumption, the study therefore focused on rental housing transactions as a way to isolate consumption behaviour and investigate its response to the variable of interest, namely, road traffic noise. Additionally, tenancy agreements are typically influenced by market dynamics with little policy intervention, and thus reflect a renter’s willingness to pay.
The researchers found that noisy apartments suffered rent discounts during the pandemic, which equivalently indicated that quiet homes in the control group enjoyed a premium of 8.3% during the pandemic. Rent discounts prior to the pandemic were substantially lower compared to discounts after Covid-19 took hold in Singapore.
The results suggested that Covid-19 was an exogenous shock that amplified the difference in rent discounts caused by road traffic noise between housing units in the treatment and control groups.
Policy implications
Data from the study indicate that rent discounts continue to remain elevated, even 2 years after Covid-19 started in Singapore in early 2020. Wang and Tu conjecture that behavioural changes during Covid-19 may have accentuated people’s preference for quietness on a long-term basis. Going forward, policymakers, urban planners and real estate practitioners would therefore have to take this change into account.
Authors:
Yong, Tu is a tenured associate professor in the Department of Real Estate, NUS Business School, National University of Singapore.
Yaopei, Wang is a postdoctoral research associate in the Department of Real Estate, NUS Business School, National University of Singapore.
Appendix
Empirical design, treatment and control groups
Among the various types of roads available in Singapore (local roads, collector roads, main roads and expressways) the researchers singled out main roads as the object of study, since residential estates have the most exposure to this road type, and also for the reason that expressways have features (e.g. sound barriers) which may cause estimation bias.
The empirical model is as follows:
where Rent denotes monthly housing rent. Using distance from main road as a quantifiable proxy for quietness, residential estates covered in the study were segmented into seven “threshold zones”, each with a magnitude of 50 metres: groupi, where i = 1, referred to rental transactions within 50 m of a main road, while group2 covered rental transactions between 50 m and 100 m, group3 between 100 m and 150 m, and so forth until group6 for rental units between 250 m and 300 m. Rental units that were between 300 m and 500 m of a main road as served as the base against which premiums and discounts were calculated, since this group was deemed to have the least exposure to main road traffic noise. The other terms account for various fixed effects and estimation errors, and are held constant when measuring the marginal effect of distance from main road on rents i.e. αi.
Relative to the base group (i.e. between 300 m and 500 m), homes near main roads are expected to suffer rent discounts, and the coefficient αi is expected to be negative. But where α(i-1) is negative and αi turns positive, housing is deemed to have crossed a “distance threshold” beyond which road traffic noise ceases to be a nuisance. The lower bound of αi is treated as the turning point.
By running a regression on 46,980 rental housing transactions in the Singapore public open rental housing market between July 2006 and March 2022, the researchers identified the threshold distance to be 100 m away from main roads.
Rental housing within the threshold distance were defined as the treatment group, while the rest served as the control group.
Measuring the impact of Covid-19
To measure the impact of the pandemic on rents, the researchers designed the following DID model:
where Road noise and Covid_19 are dummy variables which respectively took on a value of 1 when housing units were in the treatment group, and when they were transacted during the pandemic period between January 2020 and March 2022.1 DID is a cross term that represents the interaction of Road noise and Covid_19: if DID took on a value of 1, that meant that the rental transaction fell into the treatment group and took place during the pandemic period.
1. The first confirmed case of Covid-19 in Singapore was on 23 January 2020.