Home Prices and Broadband: Correlation and Causation

Does the quality of broadband service affect home prices in the United Kingdom, and if so, what is the impact? In some surveys, conducted in 2014 and since indicate consumers would pay more for a home with fast broadband.

Likewise, studies of the link between broadband and economic growth show correlation, at the very least. One study by the World Bank noted that “almost every study, despite the methodology and whether it was cross-country or single country, found a positive economic impact from fixed broadband.”

First of all, note the language: “correlation,” not “causation.”

Also, the “results were sometimes not statistically significant (particularly for developing countries).” In those cases, even correlation cannot be assumed.

A study conducted by the Public Policy Institute of California likewise notes a “positive relationship between broadband expansion and economic growth.”

But “the data and methods do not definitively indicate that broadband caused this economic growth,” the institute says. Still, some claim a causal relationship.

And some studies suggest U.S. home prices might also be affected in the same way, some suggesting difference in value could be three percent to as high as 20 percent.

source: Univerisity of Wisconsin Extension

But “correlation does not necessarily equal causation,” say some researchers studying broadband and home prices.

It is possible that fiber availability drives real estate prices upwards. It also is possible that other  variables “may jointly determine both real estate prices and fiber presence.

“Residential properties in markets with high-speed broadband access would be expected to have greater value,” they say. “However, good quality broadband infrastructure is also expected to be rolled out first in high-income areas with high-valued real estate.”

Logic suggests there is some room for such effects in areas with highly-variable internet access service and virtually zero effect in areas where fast internet is ubiquitous.

Some studies suggest there is a relationship between home prices and fast broadband. But lots of variables, including age, income or wealth and race also are correlated with home prices.

A recent study by Housesimple in the United Kingdom looked at the relationship between low-speed broadband and faster broadband within a single postcode. That study shows significant differences on particular streets.

Address	Postcode	Average broadband speed on the street (Mbps)	Current average house price, street (£)	Current average house price, postcode district (£)	% difference - prices on street vs postcode district
Poplar Avenue, Oldham, Greater Manchester	OL8 3TZ	0.221	105,977	116,033	-8.7
St David's Close, Worksop, Nottinghamshire	S81 0RP	0.290	107,819	185,936	-42.0
Milton Road, Cowplain, Waterlooville, Hants	PO8 8LD	0.338	270,134	329,028	-17.9
Cross Lane, Bebington, Wirral, Merseyside	CH63 3AD	0.354	195,553	231,846	-15.7
The Willows, Acaster Malbis, York, NYorks	YO23 2XE	0.463	215,593	356,282	-39.5
May Tree Lane, Waterthorpe, Sheffield, SYorks	S20 7HA	0.467	108,782	185,681	-41.4
Turnpike Road, Connor Downs, Hayle, Cornwall	TR27 5DT	0.483	282,182	256,084	10.2
Rothbury Gardens, Plymouth	PL6 8TU	0.492	241,516	224,665	7.5
Lancaster Road, Out Rawcliffe, Preston	PR3 6BN	0.549	236,558	262,371	-9.8
Moseley Wood Gardens, Cookridge, Leeds	LS16 7JB	0.551	250,796	339,084	-26.0
Blackstone Avenue, Glasgow	G53 5DW	0.669	90,834	165,505	-45.1
Fosbrooke Road, Small Heath, Birmingham	B10 9JS	0.679	147,905	153,421	-3.6
York Crescent, Stourbridge	DY8 4RT	0.718	226663	224,042	1.2
Graham Park, South Dell, Isle of Lewis	HS2 0SP	0.718	86,679	118,718	-27.0
Coppice Farm Park, St. Leonards, Tring	HP23 6LG	0.719	211,333	556,974	-62.1
Oak Close, Little Stoke, Bristol	BS34 6RA	0.831	230,314	259,671	-11.3
Maesyrhendre, Ammanford, Carmarthenshire, Wales	SA18 2BW	0.839	81,399	142,626	-42.9
Phoenix Boulevard, York	YO26 4WX	0.853	250,205	305,653	-18.1
Gratrix Lane, Sowerby Bridge, Calderdale, SYorks	HX6 2PX	0.922	123,098	188,444	-34.7
Laburnum Drive, Milton of Campsie, Glasgow	G66 8HY	0.948	196,328	198,557	-1.1

source: Housesimple

The research revealed that house prices were on average 24 percent lower on the streets with the slowest broadband speeds, about £182,983 compared to £240,031 for the postcode district.

What we do not know is whether there are other explanations for lower house prices on those streets.

U.S. Consumers Do Not Like Their ISPs. Price is Not the Issue

With the caveat that progress in terms of speed is improving very rapidly in the U.S. market, when adjusting for purchasing power parity, internet access in developed countries is not expensive. In this study of 2010 prices, developed country internet access costs were among the lowest in the world.

source: Researchgate

In 2016, that still was the case. Of a sampling of developed nations, adjusting for purchasing power, U.S. prices were among the lowest of the highlighted countries. But some studies show speeds and costs vary widely by city.

source: CTA

Still, for reasons I cannot explain (others might cite slow speeds, high prices, poor customer services, reliability) internet service providers consistently rank at the bottom of industries for customer satisfaction.

That did not change in 2018, apparently. ISPs as an industry “remain at the bottom of the ACSI rankings, unchanged at a score of 62” out of a possible score of 100.  

source: ACSI

Mediacom improved satisfaction most in 2018, with consumer satisfaction scores up six percent, in an industry whose scores were unchanged in 2018, compared to 2017. That is partly a reflection of its status as the ISP with the worse satisfaction scores in the ISP category.

DirecTV Defections Will Slow, as Customer Satisfaction is Rising

Even if satellite linear video subscriptions are declining faster than fixed network services, overall, satisfaction with one of the services--AT&T’s DirecTV--had consumer satisfaction scores that rose more than linear video service provided by any other service providers in the U.S. market over the last year.

AT&T’s satellite TV service, DirecTV, gained three percentage points to an ACSI score of 66, compared to an industry score of 62 on the American Customer Satisfaction Index. As likely has been the case for fixed network voice service customers, unhappy customers are deserting, but that also highlights that the remaining customers are more satisfied with their purchases than the departing customers.

source: ACSI

Over the past two years, 1.4 million DirecTV customers have defected and only the most loyal customers remain, ACSI says.

Among other linear video subscription TV providers, Verizon’s Fios takes second place, unchanged at 68, followed by Dish Network at 67. Altice’s Optimum service dropped two points to 61, falling behind both the industry average and the combined score of smaller providers (62).

Charter’s Spectrum is among the few gainers in the industry, up two points to 59. But Cox Communications dropped two percent.

Frontier Communications also improved its satisfaction scores two percent points,  to match Comcast’s Xfinity at 57. Altice’s Suddenlink fell five percent.

Customer satisfaction with subscription television service peaked in 2013 at a score of 68 on the American Customer Satisfaction Index’s 100-point scale.

The industry is now stagnant at an ACSI score of 62, tied with internet service providers for last place among all industries tracked by the ACSI, the organization says.

Fixed Network Internet Access is Among the Coming Battlefields

It is fair to say there remains much skepticism about the ability of 5G providers to take fixed network internet access market share. But count AT&T among those who believe this will be a material development.

“I do think, three to five years out, there is a crossover point where 5G passses home broadband, and 5G has better performance than fiber,” Randall Stephenson, AT&T CEO, has said.

Stephenson believes AT&T will have a truly nationwide “fiber speed” network, using either 5G or fiber, across the entire United States.

That would be historically unprecedented. The old monopoly AT&T had a nearly-ubiquitous copper network. But in the post-divestiture market, no tier-one service provider has been able to sell broadband to “nearly every U.S. household” at speeds representing optical fiber performance.

With AT&T, Verizon and also T-Mobile US all planning 5G fixed wireless efforts, the potential for disruption exists. It already appears that some optimistic forecasts of cable TV market share already are falling short, with telcos--especially AT&T and Verizon, already gaining share again.

The telco erosion is not completely over. But equilibrium is approaching. Fixed wireless could be quite destabilizing, in that regard.

It often is quite hard to envision fundamental changes in the connectivity business. Few of us really understood what it would mean when the internet emerged.

Few might have really understood what it meant to adopt internet protocol as the next-generation network of choice, and not the proposed asynchronous transfer mode (ATM) alternative.

Nor, prior to mobility’s transformative adoption globally, would most of us have imagined that mobile networks would succeed where all prior attempts to provide communications to everyone globally could actually be accomplished.

In perhaps similar ways, it is hard to imagine any future time when Wi-Fi is not the choice for local area network connectivity, or when fixed networks are not the best choice for high-bandwidth communications.

source: ITU

But it also is clear that mobile revenue growth is slowing. It is fair enough to note that big revenue growth slowdowns can lead to huge shifts of business strategy, as mobility once shifted global service provider attention from fixed to mobile services, and from long distance revenues to mobile subscriptions.

Likewise, fixed network revenue opportunities also shifted from subscriptions for voice to internet access.

source: STL Partners

The traditional response always has been to try and take market share away from other providers. That accounts for cable TV operator attacks on business connectivity market share, and the earlier entry into voice services.

“Taking market share” also accounts for telco movement into entertainment video distribution and content asset ownership.

Among the new battlegrounds is internet access, for consumers and businesses, which could see a shift of share from fixed to mobile providers.