How Much are You Willing to Pay for Freedom? The Effect of COVID-19 Lockdowns on the Housing Market

Many countries have adopted lockdown measures to combat the coronavirus (COVID-19) pandemic. The lockdowns in the state of Victoria (VIC), Australia, however, are unique in that the government divides VIC into two distinct areas using Ring of Steel boundary, and consistently places more restrictions on those within the boundary. In this study, we utilize this two-tier system to estimate residents’ willingness to pay for “freedom” (i.e., fewer restrictions) on one side of the boundary versus the other; we argue that, in doing so, we can also estimate one component of the total cost of lockdowns. We adopt a spatial difference-in-differences (SDID) design and use housing rental and sales data along the boundary between the two areas in VIC before and after the lockdowns in 2020 to address the many confounding factors, including the COVID-19 health risk and heterogeneity in the socioeconomic features of the populations. We find that the residents of VIC valued “freedom” at a rate of about 2% to 3% of the property value and rental price, respectively, when the lockdown started in July 2020; however, this increased to around 5% to 7% after the lockdown was fully lifted in November 2020. At that time, there was a well-established expectation that differences in restrictions between the two areas would continue