The Effect of Environmental Factors on Property Value

Environmental factors are largely responsible for property value. Man’s attitude towards the surrounding environment is not neutral because human beings search for locations that deliver a high quality of life. Those expectations particularly concern man’s daily surroundings, including residential areas or recreational grounds. The focus of this article is to analyse how environmental factors affect the value of properties.

The quality of the environment largely affects the decisions made on the real estate market. This factor influences property value, and its social popularity generates economic benefits. From the perspective of economic theory, the environment is a unique resource which delivers an economically utilitarian function for the society.

The environment in this context can be defined as a set of material (physical and biotic) and non-material elements – objects, forces and phenomena that create a mutually interconnected and dynamic system in spatially limited territory. Man’s relationship with that system is one of interdependence. The system creates non-material living conditions for humans by catering to the biological and social needs that have been shaped throughout evolution.

One of man’s basic needs is an environment characterized by high living standards, security and a high scenic value. The environment can also be defined as a set of natural elements, in particular land features, soil, fossils, water, air, flora, fauna, natural and man-made landscape.

Scenic value is an important determinant of real estate value, and it is the critical factor as regards the prices of recreational and residential property. The significance of this factor is often marginalized in favour of location. Nonetheless, location and, to be more precise, its quality, is largely determined by the aesthetic value of the surrounding space. Scenic features significantly contribute to the prices quoted on local property markets. The presence of greenery, forests, water and the arrangement of those spatial features directly affect buyer attitudes and property value

In areas with a low degree of urbanization, there is a predominance of natural, subnatural, semi-natural and agricultural landscape. The urban landscape is fully regulated by human activity. Urban and residential green space is the product of human design, which is why it is far from resembling a truly natural setting. Hence, the correlation between scenic value and real estate function has an obvious effect on property prices

Another typical and major environmental factor that can influence property value is pollution which come in different forms. The use of environmental and economic assessment for adjustment of property value requires not only determination of the kinds, levels, and probabilities of manifestation of the various types of negative effect of the various pollutants (the environmental risk factors) and their financial consequences, but also elaboration of a viable mechanism for control of such consequences, integrated into the real estate operations.

The continuing increase of the level of physical pollution in residential areas leads to a growing negative effect of the environmental risk factors that predetermine the probability and the consequences of manifestation of such effects.

The result of assessment should be determination of the value of the real estate in question in relation to the inherent environmental factors. This value means money or monetary equivalent, which the buyer is ready to exchange for such real estate.

Considering the current market conditions of the real estate market, all real estate assets should be valuated with regard to the environmental conditions in the area to be built.