Hotel Externality Effect and Rental Value of Residential Properties

A residential property commands its full rental value if it is appropriately located so much that it suffers no negative externality effects from conflicting land uses. This study investigates the effects of one and two star hotels externalities on rental value of residential properties in selected areas in Lagos. The hypothesis that hotel externalities have no significant effects (positive or negative) on house rent is tested with a standard hedonic pricing model using a sample of 250 residential properties across the study areas. The results established the more common belief that hotels have negative impacts on the rental values of nearby residential properties. It further revealed that property owners hardly consider the effects of negative externalities generated by a nearby hotel, while deciding on contract rent. On the other hand, tenants will pay higher rent for properties farther from hotels with evident negative externalities and will not make demands for properties around such hotels. These will consequently amount to an economic waste for the investors, causing their investments to lose its anticipated benefits.