How do Housing Prices Adjust After an Environmental Shock? Evidence from a State-Mandated Change in Aircraft Noise Exposure

We analyze the adjustment of housing prices after an exogenous shock. Using continuous records of the housing market around a major European airport (ZRH, Switzerland) and an unexpected change in flight regulations induced by the neighboring country Germany, we find that apartment rents take about two years to stabilize to a new equilibrium value. After this period we find a constant markup for apartments in regions exposed to less aircraft noise, and a constant discount in regions with more noise. Alternative demand-side indicators like search effort and turnover adapt to the new macro situation and reach pre-shock levels after two years, whereas little evidence is found for supply-side effects.