THE EFFECTS OF HOTEL EXTERNALITIES

ON

HOUSE RENT IN SELECTED LOCALITIES IN LAGOS METROPOLIS.

BY

AKINWANDE TIMOTHY OLUGBENGA

(090502018)

DEPARTMENT OF ESTATE MANAGEMENT,

FACULTY OF ENVIRONMENTAL SCIENCES,

UNIVERSITY OF LAGOS, LAGOS STATE.

A PROJECT SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENT

FOR THE AWARD OF BACHELOR OF SCIENCE (B.SC) DEGREE IN ESTATE

MANAGEMENT TO THE DEPARTMENT OF ESTATE MANAGEMENT,

UNIVERSITY OF LAGOS, LAGOS STATE.

FEBRUARY, 2014

TABLE OF CONTENTCERTIFICATION.....................................................................................................................................................I

DEDICATION..........................................................................................................................................................II

ACKNOWLEDGEMENT.......................................................................................................................................III

ABSTRACT............................................................................................................................................................VI

TABLE OF CONTENT............................................................................................................................................2

CHAPTER ONE.......................................................................................................................................................5

1.0 INTRODUCTION.......................................................................................................................................5

1.1 Background to the Study..............................................................................................................................5

1.2 Statement of Research Problem...................................................................................................................7

1.3 Aim and Objectives of the Research............................................................................................................8

1.4 Research Questions......................................................................................................................................9

1.5 Research Hypothesis....................................................................................................................................9

1.6 Scope of Study...........................................................................................................................................10

1.6.1 Study Area.........................................................................................................................................10

1.6.2 Map of the Study Area......................................................................................................................11

1.7 Justification for the Study..........................................................................................................................11

1.8 Limitation of the Study..............................................................................................................................12

1.9 Research Method.......................................................................................................................................13

1.10 Definition of Terms....................................................................................................................................13

CHAPTER TWO....................................................................................................................................................15

2.0 LITERATURE REVIEW..........................................................................................................................15

2.1 Introduction................................................................................................................................................15

2.2 Externalities Defined.................................................................................................................................16

2.2.1 External Costs and Benefits..............................................................................................................18

2.2.2 Causes of Externalities......................................................................................................................19

2.2.3 Classification of Externalities...........................................................................................................19

2.3 Factors Affecting Property Value..............................................................................................................20

2.4 Externalities and Property Value (on a general note)................................................................................22

2.5 A Brief look at Hotels................................................................................................................................24

2.5.1 The Evolution of the Hospitality and Lodging Industry...................................................................25

2.6 Hotel Externalities.....................................................................................................................................28Page 2

2.6.1 Creation of Employment as a Hotel Externality...............................................................................28

2.6.2 Traffic Congestion as a Hotel Externality.........................................................................................29

2.6.3 Crime as a Hotel Externality.............................................................................................................30

2.6.4 Prostitution as a Hotel Externality....................................................................................................32

2.6.5 Juvenile Delinquency as a Hotel Externality...................................................................................34

2.7 Hotel Premises and the Environment........................................................................................................35

2.7.1 Impact of Hotels on the Residential Property Value.........................................................................36

2.8 Hedonic Price Model.................................................................................................................................37

2.8.2 Hedonic Models and Real Estate Valuation......................................................................................38

CHAPTER THREE.................................................................................................................................................42

3.0 RESEARCH METHODOLOGY...............................................................................................................42

3.1 Population Design......................................................................................................................................42

3.2 Research Design.........................................................................................................................................42

3.3 Restatement of Research Questions and Hypothesis.................................................................................42

3.3.1 Research Questions...........................................................................................................................42

3.3.2 Research Hypothesis.........................................................................................................................43

3.4 Sources of Data..........................................................................................................................................43

3.5 Primary Sources.........................................................................................................................................43

3.6 Secondary Sources.....................................................................................................................................43

3.7 Research Instrument...................................................................................................................................43

3.8 Validity of the Instrument..........................................................................................................................44

3.9 Area of Study.............................................................................................................................................44

3.10 Method of Data Analysis...........................................................................................................................45

CHAPTER FOUR...................................................................................................................................................48

4.0 DATA ANALYSIS AND EMPIRICAL RESULTS.................................................................................48

4.1 Data Analysis.............................................................................................................................................48

4.1.1 Table 1: Effects of Zest Hotel Externalities......................................................................................48

4.1.2 Table 2: Effects of Mevron Hotel Externalities................................................................................50

4.1.3 Table 3: Effects of Hotel Royale Externalities.................................................................................51

4.1.4 Table 4: Effects of Nymph Suites Externalities................................................................................52

4.1.5 Table 5: Effects of Bobby Guest House Externalities......................................................................53

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4.2 Empirical Results.......................................................................................................................................54

CHAPTER FIVE.....................................................................................................................................................56

5.0 SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS......................................56

5.1 Research Findings......................................................................................................................................56

5.2 Conclusion.................................................................................................................................................58

5.3 Recommendations......................................................................................................................................59

5.4 References..................................................................................................................................................62

5.5 Appendices.................................................................................................................................................66

5.5.1 Questionnaires...................................................................................................................................66

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CHAPTER ONE

1.0 INTRODUCTION

1.1 Background to the Study

An externality exists when the consumption or production choices of one person or firm

enters the utility or production function of another entity without that entity’s permission or

compensation (Asafar-Adjaye, 2000). Economically, an externality or transaction spill over, is

a cost or benefit that is not transmitted through prices in that it is incurred by a party who was

not involved as either a buyer or seller of the goods or services causing the cost or benefit.

The cost of an externality is a negative externality or external cost, while the benefit of an

externality is a positive externality, or external benefit. In real estate parlance, the notion of

externalities states that external factors to a property can have either positive or negative

effects on its value (Appraisal Institute, 2008; Do et al., 1994) as cited in (Babawale,

Adewunmi, 2011). Because of its physical immobility, real estate tends to be affected by

externalities more strongly than most other economic goods, services, or commodities

(Babawale, Adewunmi, 2011). Babawale et al,(2011) further established that ''If an externality

is truly a nuisance, then values of properties within close range will be adversely affected in

proportion to the distance from it. If on the other hand an externality is an amenity, then

property value will increase the closer a property is located to it''.

Noise from loud speakers particularly at party times, people moving in and out of premises,

traffic and parking problems, air pollution from exhaust of generators and vehicles,

environmental pollution from waste disposal, late night activities, moral decadence (sex

workers, junkies and addicts, sellers of alcohol and hard drugs) and people from different

walks of life trooping into the neighbourhood are parts of the negative externalities generated

by hotels. In Nigeria, 'happy hours' (A time to merry) are known to start on Friday evenings to

last through the weekend and mostly involving overnight activities, sex workers are numerous

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and a lot of jobless youths who are into drug and alcohol consumption usually loitering, this

however enhances criminal activities in a hotel environment. Recently, the Oyo state

government banned brothels in residential areas (Punch Agency Reporter, 2013); this justifies

the fact that hotels generate negative externalities. Kuo (2003) observed that hotels in certain

regions contribute to irritating noise levels in the neighbourhoods, increase levels of fear,

contribute to more violent and aggressive behaviour and encourage commercial sex activities.

In a similar study on churches in Chicago (Do et al., 1994 as cited in Babawale et al, 2011)

established that noise from church bells, loud speakers and musical instruments, people

arriving and departing the premises, traffic and parking problems, pollution from automobiles,

operating hours extending from morning till evening, and people of different shades and

characters trooping into the neighbourhood are parts of the negative externalities generated by

neighbourhood churches. Additionally, on the issue of noise, Nelson (1978) argued that

environmental noises that exceed ambient levels can disturb valuable activities such as

conversation, TV viewing, leisure, work or sleep and that in several cases can have adverse

effects on long-term health and thereby reduce productivity and quality of life, while

according to Babawale et al, (2011) Irritating noise level in the neighbourhood also

contributes to more violent and aggressive behaviour. Expectedly, such environments repel

rentage, purchase or acquisition of properties thereby lowering the economic values of such

nearby residential properties.

Hotels on the other hand generate positive externalities in the likes of employment

opportunity, goodwill (landmark, which enhances accessibility), provision of infrastructure

amongst others. Kuo (2003) revealed that hotels which host tourists and international

dignitaries add to the value of nearby residential properties, while Laverne and Winson-

Geideman (2003) in their study found that rental rates of properties were found 5% higher on

sites having a quality landscape and surrounded by hotels and bars. When hotels are located

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within residential areas, the residential properties become subject to hotel externalities; which

consequently affect the value of such properties, depending on the nature of the externalities.

This implies that if hotel externalities are disamenities, substantial amount of money secured

with high interest rates are being tied down without generating the desired income for the

respective investors (Olujimi and Bello, 2009). Hence the need for the enforcement of and

adherence to zoning regulations.

The major aim of zoning regulations are to restrict and isolate commercial development from

immediate proximity to residential areas. Besides zoning, which typically tries to distance

these land uses from residential areas, buffers are sometimes required by public sector entities

to form natural or artificial barriers to protect nearby residents from the noise, traffic,

excessive night lighting, and aesthetic deterioration generated from commercial activity

(Recai et al, 2010). Unfortunately, in a city like Lagos which is subject to a high rate of

metropolitan explosion (Mabogunje, 1968), in Nigeria where laws are barely enforced; zoning

regulations and planning laws are paper tigers. These zoning laws are not obeyed, and this

leads to conflicting land uses and indiscriminate location of developments.

This study being a perfection study, investigates hotel externalities and the influence these

have on house prices. This study is however broken down into sections. The first section

introduces the project, the introductory section is followed by a literature review; where

related literature were critically reviewed. The Research methodology adopted and the data

analysis followed respectively. Finally, this study concludes with a summary of findings and

sensible recommendations.

1.2 Statement of Research Problem

Zoning regulations are often times disobeyed as cities grow in developing countries like

Nigeria, where planning regulations are not effective. This leads to indiscriminate location of

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commercial developments in residential areas. A hotel which is of commercial use in the same

locality as residential properties, can have both negative and positive influence on the

environment. Such impact in the negative may include traffic congestion, high crime rate,

insecurity, high late night population, moral decadence, environmental pollution etc. While

positive influence may include provision of infrastructures such as tarred road (accessibility),

employment opportunity and the likes. These externalities generated from hotels,

subsequently have an impact on the value of neighbouring residential property. Hence, the

need for an investigation on the effects of these externalities on property value.

There is paucity of studies on the effect of hotel externalities on the value of neighbouring

properties. The paucity of studies on the effect of churches on the value of nearby residential

properties can be attributed to effective planning in developed countries; which curtails

indiscriminate location of religious premises as observed by Babawale and Adewunmi (2011).

This possibly could be the reason why there are very few studies on the effect of hotel

externalities on property value. Hence the cogent need for this study, as there are, but a few

studies carried out on the study area, as regards the effects of hotel externalities on

neighbouring property value. It is against this background that this study was conceived to

attempt an investigation on the relationships between hotel externalities and the value of

neighbouring residential properties in a congested metropolis like Lagos state, Nigeria; where

zoning regulations are rarely obeyed.

1.3 Aim and Objectives of the Research

The aim of this research is to ascertain the effects of hotel externalities on the rental value of

neighbouring residential properties in selected localities in the Lagos metropolis, while the

specific objectives are to:

1. To identify the activities of the sampled hotels as well as the services they render.

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2. To ascertain all relevant factors surrounding the establishment of the hotels as it

affects the hotel's impact on the adjoining residential properties.

3. To measure the influence of the hotels on the rental values of adjoining residential

properties.

4. To proffer solutions to the problems of hotel externalities as they relate to residential

property value.

1.4 Research Questions

The afore-mentioned objectives have generated a number of questions in terms of hotel

externalities and values of residential properties, to which answers are to be provided. The

relationship between externalities of a hotel and the values of neighbouring residential

properties cannot be determined without due consideration given to variables that make up

these externalities. Some pertinent questions to enable the study attain its stated objectives are

as follows:

1. What are the types of activities and services rendered by the sampled hotels?

2. How do the layout, size, activities, location etc. of the hotels impact on the adjoining

residential properties?

3. What is the influence of externalities generated by the hotels on the rental values of

adjoining residential properties?

4. What are the implications and solutions to the externalities generated by hotels within

residential neighbourhood?

1.5 Research Hypothesis

Consequently, the following hypothesis was postulated:

H0: Hotel externalities have no significant effects on the rental values of adjoining

residential properties.

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1.6 Scope of Study

The investigation will be limited to the impact of five hotel premises in the Lagos metropolis

on the rental value of residential properties. The choice of five hotels is made so as to provide

an acceptable spread of data from different parts of Lagos in order to avoid bias in the final

conclusion, and additionally to provide sufficient specimen to discover and report both

positive and negative effects of hotel externalities on the rental value of residential properties.

The localities to be selected are (Akoka) Yaba, Berger, (Mile 12) Ketu, Alagbado, and Ajah

areas of Lagos. The hotels sampled will be selected using purposive sampling, in order to

arrive at a convincing conclusion. Accordingly the findings will be analysed and a conclusion

will be drawn from this.

1.6.1 Study Area

Lagos State is an administrative division of Nigeria, located on latitude 6°35' N 3°45' E in the

south-western part of the country, it was created on the 27th May, 1967, it has Ikeja as its

capital city, Lagos was the Federal Capital Territory of Nigeria from amalgamation at 1914 up

until 1991 when the Federal Capital Territory was moved to Abuja . The smallest in area of

Nigeria's states, Lagos State is arguably the most economically important state of the country,

containing Lagos, the nation's largest urban area. The actual population total is disputed

between the official Nigerian Census of 2006, and a much higher figure claimed by the Lagos

State Government. The census puts the population of Lagos state at a total of 9,013,534

people. (Website: lagosstate.gov.ng)

The increased relative economic influence of Lagos being the centre of excellence, and the

bedrock of commerce in Nigeria is responsible for its continuous vast expansion since 1898

when railway construction was first completed in the state (Mabogunje, 1968). This has

created greater opportunities especially for residential and commercial property

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developments. As a result of the railway and airports like the Murhitala international airport

(Nigeria's chief airport) a large number of hotels have been built in Lagos, to service

travellers; making Lagos the seat of most extensive hotels in the country. The map below

shows the different local governments in metropolitan Lagos.

1.6.2 Map of the Study Area

SOURCE: Google maps

1.7 Justification for the Study

This study will help the government, planning authorities, real estate practitioners, the

academic body, residents, investors and other stakeholders to access a vast knowledge of the

effects of hotel externalities on the rental value of neighbouring residential properties.

This research work will equip the government and planning authorities with the needed

knowledge to make the right decisions with regards to zoning of land use and development, it

will identify the effects of hotel externalities, thereby helping all stakeholders to know if these

land uses are complementary or conflicting. It will encourage the government to work

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towards the enforcement of zoning regulations, so as to ensure residential properties

command their full rental value; as well as enhance real estate practitioners in carrying out

adequate advisory services for their clients. This research work will further help to fill the gap

in the existing body of knowledge about the effects of hotel externalities on nearby residential

properties in Nigeria as there is minimal study on this research work.

The increased relative economic influence of Lagos being the centre of excellence, and the

bedrock of commerce in Nigeria is responsible for its continuous vast expansion since 1898

when railway construction was first completed in the state (Mabogunje, 1968). This has

created greater opportunities especially for residential and commercial property developments

to cluster in Lagos. As a result of the railway and airports like the Murhitala international

airport (Nigeria's chief airport) situated in Lagos, a large number of hotels have been built in

Lagos to service travellers; making Lagos the seat of most extensive hotels in the country.

This offers access to richer information on hotels than most other states in Nigeria, justifying

the choice of Lagos where several samples of hotels could be drawn for proper investigation

purposes.

1.8 Limitation of the Study

Some challenges were encountered during the study. As a result of the “carefulness” of staffs

of the sampled hotels, there was considerable reluctance on their parts to volunteer

information; while some avoided stating the absolute truth. Some of the respondents who are

residents of nearby residential properties, delayed in completing the questionnaires

administered on them. However, the researcher took time to allay the fears of respondents by

educating them about the essence of the research; that it would in no way expose them to

imposition of levies or charges or any liability to the Lagos State Government. Another major

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challenge was the unavailability of sufficient data and information from books, text-books,

journals and the internet.

1.9 Research Method

The primary source of data for this research work include Oral interview and Questionnaire,

while the source of Secondary data include relevant texts, journals, magazines,

seminar/workshop papers and articles. The instrument used to capture data in this research

work were Questionnaires structured to investigate the effects of hotel externalities on the

neighbouring residential property value; this was designed by the researcher and authenticated

by his supervisor. There were two Questionnaires, one addressed to the sampled hotels, while

the other was addressed to the residents of the hotel neighbourhood. The data captured is

however analysed using the standard hedonic pricing model, as studies on the impact of

externalities are traditionally investigated; using the hedonic pricing model (Rosen, 1974;

Kohlashe, 1991).

1.10 Definition of Terms

Return of capital: The point or level of financial activity at which expenditure equals

income, or the value of an investment equals its cost.

Return on capital: A profit made on an investment or business venture.

Externality: The beneficial or adverse effects an activity or a particular land use has on other

adjoining land uses.

Spill over: The overflow of the activities of an organisation or land use out of proportion to

affect nearby land uses.

Amenities: Amenities can be defined as additional fixtures such as high quality fixtures,

proximity to shopping complexes or schools, striking or unique design, good roads, and other

infrastructures that enhance the desirability and often the appraisal value of the property.

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Disamenities: Disamenities can be defined as disadvantages or drawbacks especially of a

location that reduces the desirability and often the appraisal value of a property.

Pareto: This refers to an optimal level, a state of economic equilibrium in which it is impossible to

change the allocation of resources without improving the lot of one agent at the expense of another.

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CHAPTER TWO

2.0 LITERATURE REVIEW

This chapter covers issues relating to the research aim and objectives. It involves a rigorous

research into related literature by established authors, to give a clearer understanding of the

research topic. Relevant texts, journals, magazines, seminar/workshop papers and articles

were all jealously consulted to come about the accomplishment of this chapter. The keywords

in this dissertation being externalities, hotel, residential property, property rental value,

hedonic pricing model; related literatures on these subjects were reviewed as it relates to the

impact of externalities on property value.

2.1 Introduction

The real estate investment market is very large, but within this investment market the hotel

business is assuming a place in the world's largest industry (Fennel, 1999. Middleton and

Hawkins, 1998). World Trade Organization (1997) states that it is becoming the most diverse

industry and one of the most important social and economic activities of today's world. The

international tourist arrival numbers increase annually worldwide and based on the WTO

(1997) estimates, by the year 2020 there will be 1.6 billion arrivals, spending over 2 trillion

U.S dollars. This signifies an expected growth at an average of 4.3% globally and spending at

6.7% annually.

As a result of the viability of the hotel business, many countries in the world are now reliant

on this industry, wanting to invest more therein particularly when other forms of investment

are not as viable. The hotel business has grown to become a good source of economic benefits

of foreign exchange, employment, government revenues, infrastructural developments,

amongst others (Edgell, 1990; Laws, 1995; Robert, 1993; and WTO, 1997). Although hotel

business has grown to be of great economic benefits in many nations, it is recognized that the

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introduction of hotels in any location will cause some changes (Glasson, 1995), as it relies

directly and indirectly on a range of resources including built environment at destination areas

(Hunter and Green, 1995).

For this research work, the interest is centred on whether a hotel premises has a positive

impact or negative impact, and to what extent. In many parts of Lagos, residents have argued

that a hotel premises can be an amenity where such hotels provide employment opportunities,

recreation facilities, quality property development, and enhance accessibility. On the other

hand, some members of the community pose some resistance believing that this will have

negative impacts on property value, due to possible loss of privacy, juvenile delinquencies,

moral decadence, noise, higher traffic and more crime in the neighbourhood.

It is evident that hotels generate externalities, which can either be positive or negative

depending on the hotel, the size of the hotel and its activities. Hotels can encourage local

artisans by providing employment opportunities. A hotel of good repute will raise the profile

of a neighbourhood and attract investment in nearby residential properties. However, a hotel

of bad repute can scare away prospective tenants and cause the situation of void/vacancy in

nearby residential properties. The effects of hotel externalities on property value should

therefore be investigated.

2.2 Externalities Defined

John Asafar-Adjaye (2000) stated that an externality exists when a person makes a choice that

affects other people in a way that is not accounted for in the market price. For instance, a firm

emitting pollution will typically not take into account the costs that its pollution imposes on

others. As a result, pollution may occur in excess of the 'socially efficient' level, which is the

level that would exist if the market was required to account for the pollution. Laissez-faire

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economists such as Friedrich Hayek and Milton Friedman sometimes refer to externalities as

"neighbourhood effects" or "spillovers", although externalities are not necessarily minor or

localized. Similarly, Ludwig Heinrich Edler argues that externalities arise from lack of "clear

personal property definition."

However, Heller and Starrett (1976) who gave a classic definition, defined an externality as “a

situation in which the private economy lacks sufficient incentives to create a potential market

in some good and the non-existence of this market results in losses of Pareto efficiency.” In

economic terminology, externalities are examples of market failures, in which the unfettered

market does not lead to an efficient outcome.

Bishop Matthew (2012) stated that "Externalities are costs or benefits arising from an

economic activity that affect somebody other than the people engaged in the economic

activity and are not reflected fully in prices". Laffont (2008) established that Air pollution

from motor vehicles is an example of a negative externality. The costs of the air pollution for

the rest of society is not compensated for by either the producers or users of motorized

transport. In the case of both negative and positive externalities, prices in a competitive

market do not reflect the full costs or benefits of producing or consuming a product or service.

Producers and consumers may neither bear all of the costs nor reap all of the benefits of the

economic activity, and too much or too little of the goods will be produced or consumed in

terms of overall costs and benefits to society.

For example, manufacturing that causes air pollution imposes costs on the whole society,

while fire-proofing a home improves the fire safety of neighbours. If external costs exist, such

as pollution, the good will be overproduced by a competitive market, as the producer does not

take into account the external costs when producing the good. If there are external benefits,

such as in areas of education or public safety, too little of the good would be produced by

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private markets as producers and buyers do not take into account the external benefits to

others. Here, overall cost and benefit to society is defined as the sum of the economic benefits

and costs for all parties involved.

2.2.1 External Costs and Benefits

Standard economic theory states that any voluntary exchange is mutually beneficial to both

parties involved in the trade. This is because buyers or sellers would not trade if either thought

it not beneficial to themselves. However, an exchange can cause additional effects on third

parties. From the perspective of those affected, these effects may be negative (pollution from

a factory), or positive (honey bees kept for honey that also pollinate crops). Welfare

economics has shown that the existence of externalities results in outcomes that are not

socially optimal. Those who suffer from external costs do so involuntarily, while those who

enjoy external benefits do so at no cost.

The person who is affected by the negative externalities in the case of air pollution will see it

as lowered utility: either subjective displeasure or potentially explicit costs, such as higher

medical expenses. The externality may even be seen as a trespass on their lungs, violating

their property rights. Thus, an external cost may pose an ethical or political problem.

Alternatively, it might be seen as a case of poorly defined property rights, as with, for

example, pollution of bodies of water that may belong to no-one.

On the other hand, a positive externality would increase the utility of third parties at no cost to

them. Since collective societal welfare is improved, but the providers have no way of

monetizing the benefit, less of the good will be produced than would be optimal for society as

a whole. Goods with positive externalities include education (believed to increase societal

productivity and well-being; but controversial, as these benefits are generally internalized,

e.g., in the form of higher wages), public health initiatives (which may reduce the health risks

and costs for third parties for such things as transmittable diseases) and law enforcement. Page 18

Positive externalities are often associated with the free rider problem. For example,

individuals who are vaccinated reduce the risk of contracting the relevant disease for all

others around them, and at high levels of vaccination, society may receive large health and

welfare benefits; but any one individual can refuse vaccination, still avoiding the disease by

"free riding" on the costs borne by others.

There are a number of potential means of improving overall social utility when externalities

are involved. The market-driven approach to correcting externalities is to "internalize" third

party costs and benefits, for example, by requiring a polluter to repair any damage caused.

But, in many cases internalizing costs or benefits is not feasible, especially if the true

monetary values cannot be determined.

2.2.2 Causes of Externalities

1. Interdependence between economic agents: One person’s activity affects the utility

or production of another. However the market system fails to ‘price’ this interdependence, so

that affected party is uncompensated.

2. Lack of or weak property rights: Due to the lack of property rights, the affected

party is unable to demand or ask the compensation for the damage, which are made by

externality.

3. High transaction costs: The cost of negotiation, implementation and enforcement

between the parties maybe high.

2.2.3 Classification of Externalities

Externalities are further classified into four, and these are as follows:

1. Relevant externalities2. Pareto relevant externalities3. Static and dynamic externalities

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1. Relevant externalities

An externality is not relevant until the affected person stops being indifferent to it. It will

become relevant when the affected person is suffering by the activity and wants the offending

person to reduce the level of the activity.

2. Pareto relevant externalities

A Pareto relevant externality exists whenever its removal results in a Pareto improvement. A

Pareto improvement is a situation where it is possible to take action, such that the affected

person is made better off without making the offending person worse off. It means that when

the level of an externality is optimal, it becomes Pareto irrelevant.

3. Static and dynamic externalities

To point out the static and dynamic externalities, take the example of two fishers who are

operating under an open access or property rights regime. A static externality is when one

creates an externality for the others by overfishing. However, the externality can become

dynamic if the offending party is harvesting juvenile fish that may have some future value. In

this case, there will be adverse impacts for the future.

2.3 Factors Affecting Property ValueAdjacency variables have a significant effect on the value of any property, the nature of an

environment as well as people's perception of a particular neighbourhood determines the

amount tenants are willing to pay to live in that neighbourhood. There are however other

factors that affect property value asides the adjacency variables. According to Morgan (2010),

the factors below affect the value of residential properties.

Size of plot and structure: The size of the plot on which a residential property is situated as

well as the size of the structure itself are major determinants of the property value.

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Condition of the building: The condition of the house also significantly influence the

property value. A property in a good state of repair will command a higher rent than one in a

poor condition.

Extras: The extras here refer to features like a garage, a pool, a barn, matured garden etc.

Any prospective buyer, or tenant who is interested in these extras may have to pay a higher

price.

Public Opinion: The public opinion about a particular neighbourhood's reputation will

drastically improve or reduce the potential for a good offer.

Accessibility: The nearer a home is to necessary facilities such as shopping malls, grocery

store, hospital etc, the more attractive it is to prospective tenants; then it may help increase the

amount a tenant is willing to pay.

Curb Appeal: This is the outward look of a house which is the first impression. It can lead to

a higher offer if it is appealing.

Neighbourhood values: The recent rent or selling price of similar properties in the

neighbourhood is usually a benchmark for property value, except the subject property

obviously has more impressive features.

There are factors that on the contrary decrease the value of residential properties. These are:

Property Deterioration: Improper maintenance of properties results in deterioration, and this

in turn reduce the value of such properties.

Noise: Properties in areas where there is excessive noise usually suffer decrease in value.

Developments such as railway tracks, airports, churches and hotels usually generate excessive

noise which decreases residential property value. Asides the poor property condition and

noise, a decline in the neighbourhood will also negatively affect property value.

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Having extensively discussed externalities, and the factors that affect property value, it is

expedient in continuation of this research work to take a look at hotels and how the activities

affect its next environment.

2.4 Externalities and Property Value (on a general note)

For the purposes of this article, an undesirable land use will be defined as any land use that

creates a stigma for at least some nearby properties. The Dictionary of Real Estate Appraisal

defines stigma as: “An adverse public perception regarding a property with some type of

opprobrium (environmental contamination, a grisly or repugnant crime) which exacts a

penalty on the marketability of the property and hence its value.” (Chicago Appraisal

Institute, 2002 as cited in Bell, 2001). A variety of land uses may create stigma including, but

not limited to: toxic waste sites; landfills; airports; prisons; concentrated animal feeding

operations (CAFOs); petrochemical refineries; nuclear power plants; and, abandoned

manufacturing facilities. The important distinction to be made is that this article only

considers those situations in which the adverse public perception (stigma) of a subject

property is due to the presence of an undesirable land use, and not due to a direct problem

with the subject property itself.

In a study on undesirable land uses Olawunmi, Akinjare and Ayedun (2011) tried to capture

the pattern of residential property rental values around High Voltage Overhead Transmission

Lines (HVOTLs) using a rent comparison basis within Lagos metropolis they established that

there has been a constant debate that HVOTLs facilitate residential property values

diminution. On the 13th of February, 2010 in Port Harcourt, Southern Nigeria, the BBC

online news confirmed that at least ten people were charred beyond recognition while many

other passengers were electrocuted when a power line cable snapped off a pylon hanger and

fell on a commuter bus (BBC News Website, 2010, as cited in Olawunmi, Akinjare and

Ayedun,2011). According to Olawunmi et al, (2011) Several studies including those of

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Kinnard (1967), Wertheimer & Leeper (1979), Colwell and Foley (1979), (Savitz et al,1988)

and some recent ones Chalmers and Voorvaart (2009), (Akinjare et al 2012), have for long,

sort to investigate the impact of power lines on the property values and also its probable effect

on the health of residents within close range. Another study by Syms (2001) as cited in

Olawunmi et al, (2011) exposed to the media the issue of power-lines as they affected

property values negatively.

Bello and Ajayi (2010) in their paper which examined the occupants’ satisfaction and rent

paid for residential properties within three neighbourhoods (Olusosun, Abule – Egba, and

Solous) close to waste dump sites and Ketu neighbourhood (not close to dump site) in Lagos

Metropolis, she comfirmed an originally established statement that the value of properties can

be attributable to the nature of property as a package of goods and services (Bello and Bello

2008). Therefore, property extends beyond shelter to include environmental characteristics or

attributes. She cited Bello and Bello (2008) who earlier noted that the influences of

environmental characteristics on value are difficult to assess.

As stated in Babawale, (2011) some externalities are associated with negative effects and

examples of such are externality effects on values of residential properties in close proximity

are landfill (Arimah & Adinnu, 1995); brownfield (Kaufman & Cloutier, 2006) contaminated

properties (Kohlashe, 1991; Kinnard & Geckler, 1991); air pollution (Hamilton & Biggs,

1993; Komarova, 2009); industrial sites (Vor & Groot, 2009); oil and natural gas facilities

(Chan & McMillian, 2004); and nuclear plant and iron and steel plant (Bilbao-Terol, 2009).

On the other hand, land uses that constitute positive externalities include water view (Seiler et

al., 2001; Paterson & Boyle, 2002; Bourassa et al., 2004); open spaces, parks and greenbelt

(Bolitzer & Netusil, 2000; Asabere & Huffman, 2007); golf course (Nichollis & Crompton,

2007); and neighbourhood schools (Ketkar, 1992; Zahirovic-Herbert, 2007).

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2.5 A Brief look at Hotels

A hotel is an establishment that provides paid lodging on a short-term basis. In the earlier

days this was limited to the provisions of a room with a bed, a cupboard, a small table and a

washstand, but in the recent years this has largely been replaced with rooms that are furnished

with modern facilities, including en-suite rooms and air-condition facilities. Additional

features that are common to hotel rooms include telephone facilities, internet facilities and

televisions with cable connections; snacks and drinks are usually made available at a mini-

bar. In larger hotels, there are provisions for additional guest facilities such as restaurants, a

swimming pool, conference halls, event halls, casinos, gymnasium centre, spa, bars, and other

facilities. Hotel rooms are usually numbered or named to allow guests to easily identify their

rooms.

Some hotels offer meals as part of a room and board arrangement. In the United Kingdom for

instance, a hotel is required by law to serve food and drinks to all guests within certain stated

hours; this is however not so in places like Japan. In the United Kingdom, Canada, Australia

and Ireland, the word hotel is also used to refer to a pub which might not offer

accommodation; while in India and Bangladesh, the word may refer to a restaurant.

Hotels are usually classified based on the services provided, and such classifications are as

follows:

1. Full Service Upscale

These offer the highest forms of services and examples are Conrad Hotels, Four Seasons

Hotels etc.

2. Full Service

These are the next category of hotels as regards service provision. Examples are Hilton and

Marriott hotels etc.

3. Select Service

Examples of these are Courtyard by Marriott and Hilton Garden Inn

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4. Limited Service

These offer limited services and examples of such are Hampton Inn, Fairfield Inn, Days Inn

etc.

5. Extended Stay

Examples of such Hotels are Homewood Suites by Hilton, Residence Inn by Marriott and

Extended Stay Hotels.

2.5.1 The Evolution of the Hospitality and Lodging IndustryThe Earliest Years

From its inception, the hospitality industry has grown and developed in response to the

changing needs of those who travel for either business or pleasure. Therefore, as modes of

transportation and commerce have evolved, the hospitality industry has been continuously

reinvented to serve travellers. Records dating back to 500 B.C. are the first documenting a

commercial and leisure demand for lodging. In fact, many advanced societies including

Babylonian, Greek, Egyptian, Roman and Asian had inns and taverns located near temples, in

major centres of commerce or along well-established roadways. Throughout the Middle Ages,

religious pilgrimages gave rise to lodging within monasteries, inns and hospices owned by the

Church. It was not until the 13th century that a more formal organization of inns was formed

in Florence, Italy to house the many visitors coming to view the city’s impressive collection

of Renaissance art and architecture. In the 1700s the hospitality industry truly began to take a

new form. The posting inn, created to provide lodging to mail-carrying coachmen,

established the initial network of inns throughout England. Soon, the posting inn gave way to

the traditional English inn and the Colonial inn, both of which preceded the hotel network

which developed throughout Europe and the United States respectively. During this period,

according to Ransley, J. & Ingram, H. (2004), travel by either ship or horse-drawn carriage

created a need for these forms of hospitality to be located primarily in major towns or key

ports.

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The Railroad and Depot Hotel

With the advent and rapid expansion of the railroad system in the mid-1800s, lodging

facilities began to locate adjacent to railroad depots. The local inn became a point of pride for

many newly established American cities. As the railroad stretched west, every new outpost

city established an inn or tavern to accommodate visitors. In the major cities of the east coast

(Boston, New York & Philadelphia) hotel innovation was already in full swing. As these

cities grew economically, geographically and in population at a rapid rate, new and elaborate

hotels began to emerge which incorporated the technological advances of the time. Advances

including running water, electricity, telephone and the elevator helped each generation of

hotels push the previous generation into obsolescence. Yet, the most interesting changes in the

hotel industry were yet to come.

The First Hotel Boom and the Depression Years

Throughout the roaring 1920s, the hotel industry boomed and expanded – much like the

American economy in general. Rushmore, S. & Baum, E. (2001), Rutes, W. A., Penner, R. H.

& Adams, L. (2001) stated that this period in time marked the first major hotel development

boom. Unfortunately, also like the American economy, the hospitality industry suffered

immensely with the stock market crash of 1929 and the onset of the Depression. Almost

immediately, the hospitality industry stopped expanding and started to contract. With little to

no commercial demand and even fewer leisure customers, many properties fell into

foreclosure. Yet, for those individuals whose financial resources remained relatively liquid,

the Depression years and the decade that followed offered vast opportunities. Conrad Hilton

was one of these individuals. The boom of the 1920s and the subsequent precipitous drop in

property values of the 1930s allowed Hilton to establish the first hotel chain as he purchased

several landmark hotels in major cities for a fraction of their original cost. Earnest Henderson,

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founder of the Sheraton brand, was also able to capitalize on the economic doldrums of the

1930s.

Post World War II and the Prosperous 1950s

According to Rushmore, S. & Baum, E. (2001), Rutes, W. A. Penner, R. H. & Adams, L.

(2001) as the general economy rebounded in the 1940s, so too did the hospitality industry.

When automobiles displaced trains as the preferred means of travel, the rail-side hotels

became increasingly less desirable and less relevant to the needs of the travelling population.

Large-scale expansion in the hospitality industry was constrained due to the material and

resource needs of the military during World War II. Therefore, it wasn’t until the 1950s that

there was another sustained period of growth and further transformation within the industry.

The prosperity of the 1950s provided Americans with the financial means and physical

infrastructure to stretch their legs, which contributed to the second major hotel boom.

The Birth of the Motel

The Interstate Highway Act of 1956 as well as the continued popularization of the automobile

all but eliminated the demand for hotels in near railways. This period of time was defined by

unprecedented suburban sprawl. Proximity to urban areas carried a negative connotation for

many homeowners as suburban neighbourhoods and business parks came into vogue. With

these changes, it made more sense for this new generation of hotel to be located along the

interstate, near cities or major interchanges. This phenomenon led to the birth to the “motel”.

Originally referred to as “motor courts,” the early motels were often a cluster of cabins along

the side of the interstate. In 1954 the Ramada was introduced in Flagstaff, Arizona. The first

Ramada was called a “motor hotel” and literally translated from Spanish meant “a shaded

resting place''. As Route 66 grew in popularity as a means of cross-country travel, motor

courts became more sophisticated “fully integrated buildings under a single roof [offering]

rooms that were plain and functional, and facades that took advantage of regional styles.

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Originally, the motel was meant to provide business and leisure travellers with a lodging

option that was more economical than the full-service hotels generally located in the city. As

such, the motel was effectively the original “limited-service” hospitality product generally

offering a room and scant amenities. Additionally, motels were typically smaller, located in

secondary locations and built and managed to a lower standard than full-service hotels. Yet,

because of the relative ease of building motels, the competition increased and existing owners

looked for a way to differentiate their motel from others. This was accomplished through

adding amenities and services, increasing the number of rooms and improving the

construction quality. By the late 1960s, the characteristics that defined a motel had blended

with those of that defined a hotel, and the two were becoming somewhat indistinguishable

hotel product types. Over time, the term motel became synonymous with low-end Spartan

lodging which spurred a movement within the lodging industry to eliminate the use of the

term all together. In the present day, there are few facilities that carry the motel moniker as

presented in Rushmore, S. & Baum, E. (2001).

2.6 Hotel Externalities

It is evident in the preceding sub-topic just discussed that hotels generate externalities both in

the negative and the positive. In that regard this section of the literature review discusses in

details both positive and negative externalities generated by hotels as observed by established

authors.

2.6.1 Creation of Employment as a Hotel Externality

Local participation in tourism in developing countries is primarily in employment rather than

the tourism business where the high capital costs of entry, language, education, and skills are

constraints as stated in Healy (1994). In 2001, accommodation facilities in the Okavango

Delta employed 1658 people which is 16.6% of the formal tourism employment in Botswana

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as observed by Mbaiwa (2002). In total 10,000 people are employed in the tourism industry in

Botswana, which is 4.5% of the total employment in the country (BOB, 1999, CSO, 1998). In

enclave tourism, citizens and local people usually hold poor and unskilled jobs while

management and better paying positions are held by expatriates (Britton, 1982; Healy, 1994;

Ceballos-Lascurain, 1986; Oppermann & Chon, 1997). In the Okavango Delta, the jobs

occupied by local people in the tourism sector are mainly unskilled and attract low salaries.

These jobs include manual labour and work as drivers, maids, cleaners, night watchmen,

gatekeepers, and cooks. These artisans employed for unskilled labour will however, be most

grateful for an opportunity to earn themselves s living. The moment a hotel provides

employment opportunities to local artisans, these artisans will most likely seek

accommodation in close proximity to their work place (the hotel). Consequently, the demand

for residential properties particularly tenement building increases, resulting to an increase in

rental value. The creation of employment hence has a positive externality effect on property

rental value.

2.6.2 Traffic Congestion as a Hotel Externality

Ukpata and Etika(2012), stated that many urban cities in Nigeria are bedevilled with traffic

congestion which tends to defy various remedial measures adopted by different governments

over the years. Journey times from one point to another within a town have remained

unreliable and residents have continued to face disturbing inconveniences in transportation.

These are accompanied by noise and air pollution and the high costs associated with burning

of fuels from stationary vehicles. The contributions of road transportation to environmental

degradation in urban cities of Nigeria have been highlighted by Onokala (2008). The problem

is no longer limited to traditional cities such as Lagos, Abuja, Ibadan etc (Ogunsanya 2002;

Ogunbodede nd). Virtually every state capital city in Nigeria today faces the problem of

traffic congestion (Moses 2011). However, a survey of 26 cities by Ukpata and Etika (2012),

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displayed that Lagos city suffers the most traffic congestion in Nigeria, while it is followed in

order by Port Harcourt, Abuja, Ibadan, Aba, Kano and Onitsha. Some of the major causes of

traffic congestion include: poor parking habits, poor road network, inadequate road capacity,

lack of parking facilities, poor traffic control/management, poor drainage, presence of heavy

vehicles, poorly designed junctions/roundabouts and lack of efficient mass transport system

(Ukpata and Etika, 2012). These tend to agree with earlier findings from a number of studies

such as (Bashiru and Waziri 2008; Aworemi et al 2009; Aderamo and Atomode 2011, etc).

Lagos state has the largest concentration of hotels in Nigeria, due to several reasons such as

the presence of the Murhitala international airport (Nigeria's chief international airport), its

highly commercial nature, amongst others. The problem of congestion in Lagos will partly be

due to the presence of the many hotels with inadequate parking facilities e.g. hotels in Ajao

estate, Isolo. Traffic congestion as a hotel externality has a negative impact on residential

property value, particularly on flat apartments where most occupants are car owners; who

would find it difficult to access their apartments due to road congestion. Beyond the

inaccessibility of their apartments is the stress and its consequent health deterioration.

Considering this, prospective tenants will rather choose to occupy an alternative vacant

property farther from a hotel premises. Hence, traffic congestion as a hotel externality can

cause a situation of void in neighbouring residential properties.

2.6.3 Crime as a Hotel Externality

In a study of the relationship between gambling and crime in Western Canada. Using a

qualitative approach (interviews, content analysis, etc), they determined that gambling venues

in Western Canada act as magnets that attract certain types of crime" (Smith and Wynne,

1999). Smith and Wynne (1999) also reported that the crimes most likely to be committed by

gamblers included theft, fraud, credit card scams, and breaking and entering, and that legal

gambling had a variable impact on illegal gambling, sometimes increasing illegal gambling

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and sometimes decreasing it. According to Grinols and Mustard (2006), a casino itself may

also bring a crime and hinder economic development. However, they do not provide an

appropriate economic theory to support this assertion. Instead, Grinols and Mustard (2006)

simply list reasons why casinos can increase crime in a community. Grinols and Mustard

(2006) perform an extensive econometric analysis that controlled for unobservable county-

specific characteristics, local economic conditions, and other factors that could confound the

relationship between the opening of casinos and crime, and conclude that approximately 8%

of the crimes occurring in US counties with casinos is attributable to the presence of casinos.

The crimes affected by casino openings include several types of violent crimes (aggravated

assault, robbery, rape), burglary and auto theft. Reece (2010) also examined the relationship

between the presence of a casino in a community and a crime. He also asserts that crime rates

depend on opportunity costs and concentrates on the role played by public accommodation in

determining opportunity costs. In addition, Reece (2010) casts serious doubt on Grinols and

Mustard's (2006) conclusion that casinos cause crime to increase. Reece (2010) posits that

new hotels associated with new casinos could reduce crime rates by supplying more legal

opportunities to work in the local labour market or could increase crime rates by bringing

potential victims and criminals together.

Apparently, property values are influenced by environmental factors and property specific

attributes. These attributes according to Bello and Bello (2007) can be classified into external

and internal. External variables include the state of the economy, population, employment,

immigration, finance, location, transportation, and neighbourhood amenities; while the

internal factors comprise of the size, accommodation details, condition, design, layout, age,

etc.

Crime is an environmental menace that affects urban liveability globally (Monk, 1993;

Danbazau, 1994, Nyabvedzi and Chirisa, 2012 as cited in Recce, 2010). A popular view

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shared by criminologists is that crime is dynamic, new forms of crime emerges and old forms

assume new dimensions. (Nyabvedzi and Chirisa, 2012 as cited in Recce, 2010) assert that

residents of a neighbourhood are very sensitive to safety issues and occurrence of violence

and crime in a particular place affect travel pattern and in extreme cases, property values are

affected. Residents prone to crime and violent conflicts have an increase probability of

moving (Dugan, 1999 as cited in Recce, 2010), and households that have already decided to

relocate will consider safety issues in choosing new locations (Frey, 1979). Crime is a local

issue and its manifestation affect residential formation in a particular neighbourhood.

Understanding the relationship between property values and crime risk is important in

determining the willingness of residents to live in the neighbourhood and how much to pay to

remain safe. Neighbourhoods with high profile crime experience decrease demand from home

buyers which subsequently affect the prices of residential property in the neighbourhood

(Flippen, 2004 as cited in Recce, 2010).f

2.6.4 Prostitution as a Hotel Externality

The phenomenal increase in social problems across the globe and especially in developing

countries is worrisome. The situation becomes serious when the problem is multi-dimensional

in nature. Prostitution has been identified by scholars (Dworkin, 1992; Raymond, 1999;

Farley, 2000; Cockayne, 2001) as a global social and urban problem which has pervaded

every dimension of human survival. The phenomenon is not peculiar to developing countries;

the enormity of prostitution throughout the world is overwhelming. Across the globe, it has

become prominent social problem. The presence of prostitutes in the major urban centres of

the world especially the industrialized countries has transcended the level it was viewed as

strictly uncommon occurrence to a worrisome global problem. The figures from a European

regional reports show that 80,000 of 60 million population of United Kingdom are engaged in

prostitution while Germany has 300,000 of its 80 million populations in sex industry. In

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Africa where the problem of prostitution is relatively new unlike the situation in Europe and

other industrialized countries, the presence of large number of prostitutes has now become a

major issue. The unprecedented growth of sex industry in Africa may not be unconnected

with rapid and wide ranging socio-economic changes and globalization which has affected the

value structure of African Society. Nigeria is not spared of this scourge and prostitution has

become so prominent that Nigerians refer to it as “the Italian Connection”, “sex working”,

“Ashawo business” (Obinna, 2009). The outburst of prostitution in Nigeria, in a way, is

comparable to Western societies, where sex trade has posed a moral challenge. The alarming

dimension of this menace can be seen not only through the proliferation of brothels and hotels

for sex workers in most urban centres but also in the increasing of prostitution rings in the

country (Adesina, 2001). It is evident that the rise of prostitution is linked to the hotel

industry, as many of its customers usually patronize resident prostitutes or come into the hotel

premises with mobile prostitutes or road side prostitutes.

This phenomenon has not only attracted public concern but has also become a matter of

academic concern (Ausbeth-Ajagun, 2005; Obinna, 2005; Adesina, 2006; Uzokwe, 2008;

Adeyinka, 2008 Accusy, 2009). However, with few exceptions on socio-cultural and socio-

economic issues, most of these scholars focused on health dimensions of the problem while

neglecting the environmental implications of prostitution. This may be responsible for the

failure of most policies or efforts aimed at addressing the problem of prostitution. Supporting

the words of Jelili (2009), it is important for government, non-governmental organizations,

stakeholders and general public to be educated that the analysis, assessment, control and

management of most sociological problems or social vices (prostitution inclusive) without

recourse to their spatial and environmental implications may not yield any positive result. In

view of this, this study investigates the effect of hotel externalities (which includes

prostitution leading to moral decadence) on the rental value of residential properties. The

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moment prospective tenants discover that there is a hotel or brothel in close proximity to the

property they intended to occupy, it is only rational for such intending tenant to choose a

better alternative property. This is a negative externality of a hotel on rental value of

residential properties.

2.6.5 Juvenile Delinquency as a Hotel Externality

According to the results of a. study by Clifford, Shaw and Mckay (n.d), some areas are not

appropriate for the development of children. It is a matter of common knowledge that the

neighbourhood casts important influences upon the child. Using the statistical method, Mailer

(n.d) came to the conclusion that in New York, juvenile delinquency was greatest in those

quarters, where the level of life was very low, child immorality was very high, there were no

means of recreation, and residences were not permanent. In a community that is unstable

where there are no social laws pickpockets are found in great abundance in and around hotels

and other places where travellers stay since there is always one traveller or the other there.

Clifford et al studied juvenile delinquency in nearly 15 towns to discover that the rate of

juvenile crime was highest in the centre of the town and lowest at its further reaches. From

this they concluded that the social traditions of backward and low economic status areas

distinguish the pattern of crime from the average groups. And these patterns are maintained in

juvenile delinquent groups. In this way, big towns have certain areas where there is an

abundance of criminals and these areas are called criminal areas or crime dominated areas.

According to the famous criminologist Sutherland (n.d) criminal behaviour is acquired

through interactions with other criminals. He says that an individual becomes a criminal when

there is excess of conditions that promote the infringement of law over conditions that prevent

such infringement. And among children, some get good company while others do not. The

Child in bad company progresses towards crime while the child who gets into good company

progresses to become an able and useful member of society. An individual behaviour is

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influenced to a considerable extent by the conduct of his companions. In order to induce the

children to accept and respect the values and assumptions of adult society around them, it is

necessary to create such an atmosphere in which inspiration to criminal behaviours is reduced

to the absolute minimum. In the light of this, prospective tenants who would not want their

children exposed to the immoralities and crime associated with hotel neighbourhoods would

rather consider an alternative property which is farther from a hotel. This adversely influences

the rental value of residential properties in close proximity to hotels.

2.7 Hotel Premises and the Environment

Hotel and the environment are inter-dependent as hotel location and business involves and

relies on natural or human resources as part of its product especially in a relatively

undeveloped state (Buckley, 1999). The high quality of the environment is frequently the

primary attraction for tourists (Ceballos-Lascurain 1996a). The built environments provide

many of the attractions for tourists as well as supporting tourism by serving other functions

(Hunter and Green, 1995). In terms of the relationship between hospitality industry and the

physical environment, Budowski (1976) indicates that the relationship can be classified into

three types: conflicts, coexistence and symbiosis. Conflict when the uses are totally

contradictory, coexistence where tourism and environmental conservation can exist side by

side and with little interaction; and symbiosis where tourism and environmental conservation

can be mutually supportive and beneficial. Under symbiosis, tourists benefit from the visitor

experience and the environment receives improvements in management practice. According

to Hall (1998), tourism and hospitality industry impacts on the integrity and quality of the

environment can be classified into two categories: natural and cultural environment and

infrastructure environment. The impacts of hotel can be examined in terms of positive

benefits as well as negative effects on both the natural and cultural environments of a

destination. Real estate being an immobile commodity in an environment becomes subject to

Page 35

the externality effects of hotels. The value of such properties are consequently influenced

relative to the extent of the hotel externality, which depends on the distance of the property

from the hotel.

2.7.1 Impact of Hotels on the Residential Property Value

There is considerable literature on the impact of hotels and hotel related investment on

property value. However the focus is usually on the social and environmental adjacency

impacts that hotels bear upon their locality. It was recognized by Haley et al (2004) that hotels

induce impacts both beneficial and adverse. The presence of a hotel in a locality is a potential

for further economic development, which could impact the value of nearby residential

properties through increase in curb value of the area, attraction of tourism related businesses

in the area, improvements in local infrastructure, increased employment opportunities and

increased recreational opportunities (Davies et al, 1988). These factors are likely to cause an

increase in demand for residential accommodation in the area which would in turn result in an

increase in residential property value.

However on the contrary, hotels and other tourism related concerns have been known to

impact negatively on nearby residential properties. Pizam (1978) as quoted in Haley et al

(2004) suggested that such negative influences are evident when there is a concentration of

hotels in the area. Rotham (1978) enumerated the negative impacts to be increase in noise

levels, litter, traffic, crime, overcrowding, and other tourism induced price increases.

The perception that tenants or prospective tenants are likely to have about the presence of a

hotel and other tourism related concern is linked to the benefits that accrue from having a

hotel near to their residential properties compared with the imposition that it places upon them

(Haley et al, 2004). This theory is referred to as the social exchange theory. The attitude and

perception that the individual has about the hotel will also come to play in his application of

the social exchange theory. Therefore if a hotel imbues negative perceptions, it is likely to

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impact negatively on the property value of nearby residential homes but if on the other hand,

the hotel draws a positive perception, then the property value of nearby residential homes will

increase. The Literature review of this research work concludes by reviewing literatures on

hedonic pricing. It is the method of data analysis adopted for this research work.

2.8 Hedonic Price Model

The model focuses on markets in which a commodity can be embedded with varying amounts

of each of a vector of utility-bearing attributes (Rosen, 1974). According to Gambo (2012)

Hedonic price model is based on the recognition and treatment of the complexity and

heterogeneity of the housing product. Court (1939) appeared to be one of the earliest users

followed by Griliches (1961, 1971) who utilized the technique for the automobile industry.

However, the housing market is the most prominent in the use of the technique. Lorenz (2006)

observed that the technique has been employed to achieve three main goals in the housing

market to explain the price formation of residential property assets by identifying the main

determinants of property prices; to isolate and quantify the impact of different physical,

locational, and neighbourhood characteristics on property prices; and to account for changes

in the price formation process across region or even time. The basic structure of a hedonic

model takes the market price as the dependent variable and take all the attributes of the

product (house in this case) as independent variables. For the housing market, the independent

variables are classified into locational, structural and neighbourhood attributes. The location

attributes relates to accessibility to CBD, recreational facilities, place of worship etc. The

structural characteristics refers to the physical attributes of the property such as number of

rooms, age of the building, room size, plot size etc. While the neighbourhood characteristics,

covers the socio-economic characteristics of the people living in the neighbourhood such as

social status, racial composition etc. This study considers neighbourhood security, quietness,

and neatness as attributes of neighbourhood characteristics.

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In a hedonic regression, the economist attempts to consistently estimate the relationship

between prices and product attributes in a differentiated product market. The regression

coefficients are commonly referred to as implicit (or hedonic) prices, which can be interpreted

as the effect on the market price of increasing a particular product attribute while holding the

other attributes fixed. (Bajari and Cooley, 2010)

Some of the studies that utilize hedonic price model in Nigeria include Megbolugbe (1989);

Afolayan (2006); Bello and Bello (2007), Ajide and Alabi (2010); Otegbulu, Johnson and

Odekoya (2011); and Babawale and Adewunmi (2011) as stated in Gambo (2012).

2.8.2 Hedonic Models and Real Estate Valuation

In real estate appraisal, it is used to adjust for the problems associated with researching a good

that is as heterogeneous as buildings. Generically, it is difficult to estimate the demand for

buildings, because buildings are so different. Instead, it is assumed that a house can be

decomposed into characteristics such as number of bedrooms, size of lot, or distance to the

city centre. A hedonic regression equation treats these attributes (or bundles of attributes)

separately, and estimates prices (in the case of an additive model) or elasticity (in the case of a

log model) for each of them. This information can be used to construct a price index that can

be used to compare the price of housing in different cities, or to do time series analysis. As

with Consumer price index calculations, hedonic pricing can be used to correct for quality

changes in constructing a housing price index. It can also be used to assess the value of a

property, in the absence of specific market transaction data. It can also be used to analyze the

demand for various housing characteristics, and housing demand in general. It has also been

used to test assumptions in spatial economics.

The Uniform Standards of Professional Appraisal Practice provides for mass appraisal

standards to govern the use of hedonic regressions and other automated valuation models

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when used for real estate appraisal. Appraisal methodology treats the hedonic regression as

essentially a statistically robust form of the sales comparison approach. (Kilpatrick, 2000)

Hedonic models are commonly used in tax assessment, litigation, academic studies, and other

mass appraisal projects.

Application of the Hedonic Pricing Method

While studying the application of the hedonic pricing method, the first assumption made is the

value of a house is affected by a particular combination of characteristics that it possesses

given that properties with better qualities demand higher prices as compared to properties

with lower qualities. This is the hedonic pricing function.

The price of a house will thus be affected by the structural characteristics (s1, s2, s3...) of the

house itself, characteristics of the locality/neighbourhood (n1, n2, n3...), and environmental

characteristics (e1, e2, e3...)

Structural characteristics could be anything from size of the house, to the number of rooms,

type of flooring, etc. Neighbourhood attributes include variables like poshness of the locality,

quality of roads, etc, and the environmental characteristics are variables such quality of air,

proximity to parks, beaches, dumping yards, etc.

The analysis takes place in two stages. The first stage involves employing regression

techniques to estimate the hedonic price function of the property. This function will relate the

prices of many properties in the same housing area to the different characteristics.

So price function (P) = f (s1, s2, s3...sj; n1, n2, n3,...nj; e1, e2, e3,...ej) This function could be

linear or non-linear. The prices may change at an increasing or decreasing rate when the

characteristics change.( Gundimeda and haripriya, 2002)

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When you now differentiate the price function with respect to any one of the above

characteristics, the implicit price function for that particular characteristic is yielded. It is

considered implicit because the price function is indirectly revealed to us by what the people

are willing to pay in order to obtain better quality or quantities of the characteristic.

In the second stage, these implicit prices are regressed against the actual quantities/qualities

chosen by the people in order to attain the marginal willingness to pay for the amenity. The

results of this analysis will indicate the changes in property values for a unit change in each

characteristic, given that all the other characteristics are constant. Some variables however

may be correlated. This will result in similar changes in their values.

In general, the price of a house is related to the characteristics of the house and property itself,

the characteristics of the neighbourhood and community, and environmental characteristics. 

Thus, if non-environmental factors are controlled for, then any remaining differences in price

can be attributed to differences in environmental quality.  For example, if all characteristics of

houses and neighbourhoods throughout an area were the same, except for the level of air

pollution, then houses with better air quality would cost more.  This higher price reflects the

value of cleaner air to people who purchase houses in the area.

To apply the hedonic pricing method, the following information must be collected:

 A measure or index of the environmental amenity of interest.

Cross-section and/or time-series data on property values and property and household

characteristics for a well-defined market area that includes homes with different levels

of environmental quality, or different distances to an environmental amenity, such as

open space or the coastline.

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The data are analyzed using regression analysis , which relates the price of the property to its

characteristics and the environmental characteristic(s) of interest.  Thus, the effects of

different characteristics on price can be estimated.  The regression results indicate how much

property values will change for a small change in each characteristic, holding all other

characteristics constant. The analysis may be complicated by a number of factors.  For

example, the relationship between price and characteristics of the property may not be linear –

prices may increase at an increasing or decreasing rate when characteristics change. In

addition, many of the variables are likely to be correlated, so that their values change in

similar ways.  This can lead to understating the significance of some variables in the analysis.

Thus, different functional forms and model specifications for the analysis must be considered.

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CHAPTER THREE

3.0 RESEARCH METHODOLOGY

The focus of this chapter is to explain the methodological approach to the study. It covers:

population design, research design, hypothesis, sample and sampling technique, sources of

data, research instrument, method of administration of instruments and methodologies of data

analysis.

3.1 Population Design

The population of this project comprises of residents of Yaba, Ojodu-Berger, Ketu, Alagbado

and Ajah who are tenants in residential properties within 0-300m away from a neighbourhood

hotel. Hotels were selected in these localities using purposive sampling technique. A

reconnaissance survey was equally carried out which revealed that these hotels generate

externalities, that could influence property rental value either positively or negatively.

3.2 Research Design

To facilitate valid and acceptable findings, data was collected by general observations, oral

interviews and the use of well designed questionnaires.

3.3 Restatement of Research Questions and Hypothesis

3.3.1 Research Questions

1. What are the types of activities and services rendered by the sampled hotels?

2. How do the layout, size, activities, location etc. of the hotels impact on the adjoining

residential properties?

3. What is the influence of externalities generated by the hotels on the rental values of

adjoining residential properties?

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4. What are the implications and solutions to the externalities generated by hotels within

residential neighbourhood?

3.3.2 Research Hypothesis

H0: Hotel externalities have no significant effects on the rental values of adjoining

residential properties.

3.4 Sources of Data

The study used both primary and secondary sources.

3.5 Primary Sources

The primary data were gathered through expert oral interviews and questionnaires

administered on the target audience.

3.6 Secondary Sources

The secondary data includes information gathered from existing literatures, published

professional journals, academic works, textbooks, internet search, and newspapers.

3.7 Research InstrumentThe instrument used to capture data for this research were questionnaires structured to

investigate the effects of hotel externalities on the rental value of neighbouring flat and

tenement buildings. This was designed by the researcher and authenticated by his supervisor.

The questionnaire were of two types. One was administered on the hotel management, while

the other was administered on the occupiers of the adjoining residential properties. Each of

the questionnaires was in two sections. Section A was designed to investigate the effects of

hotel externalities on the rental value of adjoining residential property, while section B

addresses the personal information of respondents. One questionnaire was administered on the

selected hotel premises, while 50 questionnaires were administered on the occupiers of the

adjoining residential properties.

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3.8 Validity of the InstrumentAfter the questionnaire was designed, it was submitted to the supervisor for comments,

suggestions and corrections. All the comments and suggestions made by the supervisor were

noted and necessary corrections were made. The questionnaire was re-submitted for final

approval.

3.9 Area of Study

Five hotels were selected for the empirical investigation as this will provide sufficient data

upon which a reliable conclusion can be drawn. These hotels are: Zest International Hotel

located in (Akoka) Yaba, Hotel Royale located in Ojodu-berger, Mevron Guest House located

in Ketu Mile 12, Bobby Guest House located in Alagbado, and Nymph Suites and

Entertainment Centre located in (Ikota-villa) Ajah.

Zest hotel is located in Akoka which is predominantly a medium density residential

neighbourhood, with tenement houses and rented apartment (flats). Majority of residents are

within the lower and middle income brackets.

Mevron Guest House is located in Ketu-mile 12, which is predominantly residential

neighbourhood intermingled with low and medium density residences. The immediate

surroundings of the hotel under reference is low density with rented apartments, and tenement

buildings being the predominant development.

Hotel Royale situates in Ojodu- berger area of Lagos which is predominantly a low income

neighbourhood, with high population density. The buildings in the neighbourhood are largely

tenement buildings intermingled with rented apartments.

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Bobby Guest House situates in Alagbado, a low income neighbourhood. The buildings are

intermingled with tenement buildings and rented apartments (flats). The hotel is located close

to the Daar communications office.

Nymph Suites and Entertainment Centre locates in Ikota Park Estate, Ajah. The immediate

neighbourhood is high income, low density with predominantly detached houses and a few

block of flats.

In each of the study area, distance from hotel premises is divided into two zones: 0-150

metres and 150- 300 metres, respectively. In each of the study area, 50 household heads were

served with questionnaires. A total of 250 questionnaires were therefore administered. The

questionnaire sought information on rental values and residential property attributes, the

survey was conducted over two (2) months (between July and September, 2013).

3.10 Method of Data Analysis

The study employs the standard hedonic pricing model to test the null hypothesis that hotel

externalities have a significant impact on the rental values of adjoining residential properties.

The Hedonic Pricing Model is based on multiple regression analysis using the SPSS

The hedonic approach remains the most adequate and well-accepted tool for untangling the

cross-influences between the numerous dimensions affecting property values and for

establishing the implicit price of individual residential attributes (Des Rosiers et al., 2001 as

cited in Babawale et al, 2011). At its simplest, a hedonic equation is a regression of

expenditure (rental or capital values) on characteristics that determine house rent or capital

value. The model assumes that value of houses can be decomposed into the value of its

constituent characteristics (e.g. bedrooms, bathrooms, distance from amenities, age etc.) and

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the model provides estimates of the marginal contribution of each property attribute to the

total price (Rosen, 1974 as cited in Babawale et al, 2011).

The empirical specification of the hedonic price model is therefore of the form:

P = ß0 + ßj Xj + ßd Xd + u ………………….. (i)

Where,

P = property value ( the dependent variable).

ß0 = a constant term

ßj = estimated coefficients for continuous variables.

ßd = estimated coefficients for distance variable.

Xj = jth property characteristic.

Xd = distance to hotel.

u = the error term.

Previous research has identified a number of housing characteristics or attributes that impact

on their prices. Accessibility factors, neighbourhood quality factors, specific negative

externalities, public service, taxes, and identity factors are all to be considered according to

Kauko, 2003 (as cited in Babawale et al, 2011). A local study, carried out by Bello (2008)

grouped the attributes into those that are internal and those that are external to the property.

Internal attributes essentially comprise the intrinsic characteristics of the property such as

size, number of accommodation, condition, aesthetics, layout, age, and plot size, while

external attributes include the general state of the economy, population, employment,

immigration, finance, location, infrastructure, transportation and neighbourhood attributes.

Since the externality effects of hotel on rental value of properties is our main focus in this

study, the hedonic equation for this study would be of the form:

RV i = f(X ij , DIST i ) ………………………….. (ii)

Where,

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RV i is the rental value of property;

X ij is a set of explanatory housing-rent variables (housing/neighbourhood attributes)

for a given property i;

DIST i is the distance of property i from the nearest hotel measured in meters

(approximately).

The set of j th housing-rent variables considered relevant to the study area that were

used in this study are:

D_REG = distance from hotel in meters (approximately).

PARKING SPACE = Availability of adequate parking lots.

ROOM = number of bedrooms

BATH = number of bath/toilets

DIS-WRK = Perceived nearness to work.

SECURITY = The perceived neighbourhood security from armed robbers, and other

criminal activities.

COND = The condition of property in question.

Distance from hotel variable, D_REG, captures the effect of nearness of a hotel on rental

values of nearby residential properties.

A significant positive coefficient value for D_REG in the estimated model is evidenced by

negative externalities associated with the sampled hotel, since such a positive coefficient

value indicates that the rental value of a residential property increases as distance from a hotel

increases. On the other hand, a significant negative coefficient value provides evidence of

positive externalities generated by the hotel, indicating that the rental values of a residential

property decreases as distance from a hotel increases.

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CHAPTER FOUR

4.0 DATA ANALYSIS AND EMPIRICAL RESULTS

This chapter presents the summary statistics of the analyzed variables from questionnaires

administered on residents of tenement buildings and flat apartments in close proximity to the

sampled hotels. For this purpose, the chapter is structured into data analysis and empirical

results.

The hypothesis formulated for this study guided the arrangement of the tables and each of the

table displays the relationship between housing variables, including distance from hotel and

rental value of residential properties. A summary of the main findings follows each table,

showing the relationship between distance from hotel and rental value of residential

properties.

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4.1 Data Analysis

4.1.1 Table 1: Effects of Zest Hotel Externalities

Model

Unstandardized CoefficientsStandardized Coefficients

t-value Sig.B Std. Error Beta

(Constant) .153 1.356 .112 .911

Number of bedrooms 1.336 .232 .980 5.763 .000

Number of baths/toilets .133 .168 .101 .795 .434

Adequate parking space -.117 .143 -.136 -.815 .422

Distance from hotel .043 .307 .019 .140 .889

Distance of children's school -.119 .098 -.129 -1.209 .238

Accessibility of work -.002 .101 -.002 -.021 .984

Neighbourhood security .120 .134 .129 .897 .378

Neighbourhood neatness -.053 .142 -.057 -.373 .712

Neighbourhood quietness -.063 .136 -.066 -.463 .647

House condition .243 .213 .315 1.141 .264

Dependent Variable: What annual rent do you pay in the property

R2 = 0.810 (81%); F- Statistics = 11.097 (P > .000); Durbin Watson =1.766

SOURCE: Field survey, 2013

Table 1 above presents the summary for Zest Hotel situated at Akoka. The multiple

regressions equation that relates rental value (RV) to the housing attributes is given by the

constant and the coefficients of the unstandardized beta as:

RV = 0.153 + 1.356Nr + 0.133Nbt - 0.117Ps + 0.43Dh - 0.119Dcs - 0.002Dwk + 0.120Nsc -

0.053Nn - 0.063Nq + 0.243Hcd ---------------------------------------- (iii)

The equation shows that number of bedrooms, number of toilet/baths, distance from hotel,

perceived neighbourhood security, and house condition are positively correlated to rental

value as expected.Page 49

The concern of this study which is distance from hotel is positively correlated, which

confirms that the hotel generates externalities that are of negative influence on rental value. It

can hence be concluded that the farther a hotel is to a residential property in this

neighbourhood, the better for the property investors as rental value increases.

The standardized beta coefficients which provide the order of importance or relative

contribution of the housing attributes, however show that number of bedrooms make the

largest contribution.

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4.1.2 Table 2: Effects of Mevron Hotel Externalities

Model

Unstandardized CoefficientsStandardized Coefficients

t-value Sig.B Std. Error Beta

(Constant) -.878 .145 -6.061 .000

Number of bedrooms 1.593 .185 .843 8.594 .000

Number of baths/toilets .008 .096 .004 .079 .938

Distance from hotel .005 .039 .003 .132 .897

Neighbourhood security .038 .049 .034 .776 .450

Neighbourhood neatness .025 .055 .021 .450 .659

Neighbourhood quietness .328 .079 .286 4.140 .001

Accessibility of work -.055 .020 -.069 -2.741 .015

Distance of children's school .037 .037 .023 1.011 .328

House condition .011 .020 .016 .539 .597

Dependent Variable: What annual rent do you pay in the property

R2 = 0.993 (99.3%); F- Statistics = 219.512 (P > .000); Durbin Watson = 1.599

SOURCE: Field survey, 2013

Table 2 above presents the summary for Mevron Hotel situated at Ketu Mile 12. The multiple

regressions equation that relates rental value (RV) to the housing attributes is given by the

constant and the coefficients of the unstandardized beta as:

RV = - 0.878 + 1.593Nr + 0.008Nbt + 0.005Dh + 0.037Dcs - 0.055Dwk + 0.038Nsc + 0.025Nn +

0.328Nq + 0.011Hcd ---------------------------------------- (iv)

The equation shows that number of bedrooms, number of toilet/baths, perceived neighbourhood

security, neatness and quietness; distance from hotel as well as house condition are positively

correlated to house prices as expected.

The concern of this study which is distance from hotel is positively correlated, though

statistically insignificant, this however confirms that the hotel generates externalities that are

of negative influence on rental value. It can hence be concluded that the farther a hotel is to a

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residential property in this neighbourhood, the better for the property investors as rental value

increases.

The standardized beta coefficients which provide the order of importance or relative contribution

of the housing attributes, however show that number of bedrooms make the largest contribution.

4.1.3 Table 3: Effects of Hotel Royale Externalities

Model

Unstandardized CoefficientsStandardized Coefficients

t-value Sig.B Std. Error Beta

1(Constant) 2.443 .401 6.093 .000

Number of bedrooms .975 .062 .754 15.620 .000

Number of baths/toilets -.214 .030 -.295 -7.113 .000

Adequate parking space -.039 .070 -.030 -.561 .579

Distance from hotel -.264 .113 .116 2.345 .026

Distance of children's school -.051 .174 -.012 -.292 .773

Accessibility of work .086 .064 .056 1.332 .193

Neighbourhood security -.132 .102 -.097 -1.297 .205

Neighbourhood neatness .010 .105 .008 .100 .921

Neighbourhood quietness -.020 .078 -.014 -.257 .799

House condition .175 .087 .156 2.021 .053

Dependent Variable: What annual rent do you pay in the property

R2 = 0.962 (96.2%); F- Statistics = 73.319 (P > .000); Durbin Watson = 1.638

SOURCE: Field survey, 2013

Table 3 above presents the summary for Hotel Royale situated at Ojodu-Berger. The multiple

regressions equation that relates rental value (RV) to the housing attributes is given by the

constant and the coefficients of the unstandardized beta as:

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RV = 2.443 + 0.975Nr - 0.214Nbt - 0.039Ps - 0.264Dh - 0.051Dcs + 0.086Dwk - 0.132Nsc +

0.010Nn - 0.020Nq + 0.175Hcd ---------------------------------------- (v)

The equation shows that number of bedrooms, number of toilet/baths, accessibility of work,

neighbourhood neatness as well as house condition are positively correlated to rental value.

The concern of this study which is distance from hotel is negatively correlated though

statistically insignificant, this confirms that the hotel generates externalities that are of

positive influence on rental value. This might be as a result of the hotel examined being

properly planned, more so the hotel is viewed as an amenity as residents claim to enjoy

streetlight and free borehole water supply from the hotel. The neighbourhood security and

quietness are negatively correlated and this is unexpected, it may however be due to the

insecurity that has enveloped the entire nation.

4.1.4 Table 4: Effects of Nymph Suites Externalities

Model

Unstandardized CoefficientsStandardized Coefficients

t-value Sig.B Std. Error Beta

1 (Constant) -2.379 .855 -2.781 .010

Number of bedrooms 1.157 .165 .828 7.025 .000

Distance of children's school .121 .094 .150 1.286 .211

Accessibility of work .343 .264 .138 1.299 .206

Distance from hotel .214 .162 .159 1.321 .199

Adequate parking space -.250 .357 -.073 -.700 .491

Dependent Variable: What annual rent do you pay in the property

R2 = 0.763 (76.3%); F- Statistics = 15.452 (P > .000); Durbin Watson = 1.394

SOURCE: Field survey, 2013

Table 4 above presents the summary for Nymph Guest House and Entertainment Centre

situated at Ikota Villa, Ajah. The multiple regressions equation that relates rental value (RV) to

the housing attributes is given by the constant and the coefficients of the unstandardized beta

as:

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RV = - 2.379 + 1.157Nr - 0.250Ps + 0.214Dh + 0.121Dcs + 0.343Dwk -------------------------(vi)

The equation shows that number of bedrooms, distance of children school, distance from

hotel, and accessibility of work are positively correlated with rental value.

The concern of this study which is distance from hotel is positively correlated, as expected.

This confirms that the hotel generates externalities that are of negative influence on rental

value. It can hence be concluded that the farther a hotel is to a residential property in this

neighbourhood, the better for the property investors as rental value increases.

A good number of the variables were however excluded by the processing software, as the

variables have common responses. This implies that these variables are evident contributors to

rental value in the sampled locality, hence there is no need for testing such variables for

contribution. The variables excluded are: house condition, neighbourhood security,

neighbourhood neatness, neighbourhood quietness, and number of toilets and bathrooms.

4.1.5 Table 5: Effects of Bobby Guest House Externalities

Model

Unstandardized CoefficientsStandardized Coefficients

t-value Sig.B Std. Error Beta

(Constant) .575 .262 2.197 .040

Number of bedrooms .450 .033 .442 13.589 .000

Number of baths/toilets 1.108 .100 .685 11.063 .000

Adequate parking space -.071 .036 -.062 -1.993 .060

Distance from hotel .044 .053 .028 .819 .423

Accessibility of work .015 .021 .018 .738 .469

Distance of children's school .060 .043 .033 1.388 .180

House condition .072 .045 .112 1.610 .123

Neighbourhood security .007 .048 .006 .151 .881

Neighbourhood neatness -.048 .031 -.060 -1.553 .136

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Model Unstandardized CoefficientsStandardized Coefficients t-value Sig.

Neighbourhood quietness -.030 .034 -.033 -.895 .381

Dependent Variable: What annual rent do you pay in the property

R2 = 0.991 (99.1%); F- Statistics = 232.906 (P > .000); Durbin Watson = 2.072

SOURCE: Field survey, 2013

Table 5 above presents the summary for Bobby Guest House situated at Alagbado. The

multiple regressions equation that relates rental value (RV) to the housing attributes is given

by the constant and the coefficients of the unstandardized beta as:

RV = 0.575 + 0.450Nr + 1.108Nbt - 0.071Ps + 0.044Dh + 0.060Dcs + 0.015Dwk + 0.007Nsc -

0.048Nn - 0.030Nq + 0.072Hcd ---------------------------------------- (vii)

The equation shows that number of bedrooms, number of toilet/baths, distance from children's

school and work, perceived neighbourhood security, house condition, and distance from hotel

are positively correlated to house prices as expected.

The concern of this study which is distance from hotel is positively correlated, though at a

statistically insignificant level, this confirms that the hotel generates externalities that are of

negative influence on rental value. It can hence be concluded that the farther a hotel is to a

residential property in this neighbourhood, the better for the property investors as rental value

increases.

The standardized beta coefficients which provide the order of importance or relative

contribution of the housing attribute show that number of toilets/baths make the largest

contribution, and then the number of bedrooms, and the house condition.

4.2 Empirical Results

From the summary statistics of the analyzed variables as presented in Tables 1-5 above. F-

statistics for the five models are highly significant at the 1% level, and R2 values are high and

similar across the models. These suggest that a very high significance could be placed on the

results and that the housing attributes adopted sufficiently account for variation in house

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prices in the study area. The t-value column provides the individual significance of each

independent variable in the regression equation and tells whether the variable is making

statistically significant contribution. A variable must have a significant value of less than 0.05

to make significantly unique contribution. The Durbin-Watson value for each of the five

models indicates that there are no autocorrelation among the independent variables.

Four hotels among the sampled hotels were not properly planned and this largely influenced

the hotels' externality effect. The size of the hotel premises also matters as this determines the

possibility of parking problems, and the resulting traffic congestion. Finally, it was observed

that hotel externalities do not differ based on locality differences, but based on the hotel

activities, the hotel building, the size of hotel premises, and largely on the hotel services.

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CHAPTER FIVE

5.0 SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS

The attempt in this chapter is to draw inferences from the data analysis and elucidate the

findings using a format that is constructive and beneficial for policy implementations. This is

followed by recommendations and concluding comments, while attempt is also made towards

identifying opportunities for future research.

5.1 Research Findings

Research carried out in Akoka environment where Zest hotel is located revealed that hotel is

viewed as a disamenity in the neighbourhood, as the rental value of flat apartments and

tenement buildings increases with distance from the examined hotel. Findings revealed that

residents in close proximity suffer traffic congestion, noise pollution, air pollution, loss of

privacy and high crime rate as adverse externalities from the sampled hotel. The hotel

however serves as a landmark, which enhances easy location of neighbouring properties by

visitors. A number of local residents are also employed by the sampled hotel, these are

beneficial externalities.

Findings on neighbouring residential properties to Mevron hotel situated at Ketu mile 12, also

revealed that property rental value increases with distance from hotel. The implies that the

sampled hotel is viewed as a disamenity in the neighbourhood. Field survey revealed that the

neighbouring residents suffer noise pollution, and high late night population as major hotel

spill over effect. This is as a result of the hotel's club activities, and the fact that the sampled

hotel is a converted apartment which was not originally planned. The Guest house was

initially for residential use, now converted for commercial use. Neighbouring residents

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however claimed that the guest house becomes beneficial when its rooms are needed to lodge

visitors during large family gatherings.

Research carried out on residential properties in close proximity to Hotel royale situated at

Ojodu-berger area of Lagos gave a unique result, as it departs from findings from all other

sampled hotels. Rental value of tenement buildings and flat apartments was observed to

increase with nearness to the sampled hotel. This is as a result of the proper planning of the

hotel development, hotel land size, and the positive externalities benefited by the local

residents like streetlight, free borehole water supply and employment opportunity for local

residents.

Furthermore, a research was also carried out on residential properties in close proximity to

Nymphs suites and entertainment centre. Findings did not depart from that of other parts of

the Lagos metropolis where rent of flat apartments decrease with nearness to a hotel. The

sampled hotel which is located in a high income earning locality, is a regular patron of

popular music artistes who perform in the hotel's clubhouse regular. This results in high late

night population and the consequent traffic congestion, high crime rate, and juvenile

deliquency in the neighbourhood. Neighbouring residents however claimed that the hotel

becomes beneficial when its rooms are needed to lodge visitors during large family

gatherings.

The research carried out on residential properties in close proximity to Bobby guest house at

Alagbado area of Lagos, further established the fact that hotels generate negative externalities.

Rental value of tenement buildings and flat apartments decrease with nearness to the sampled

hotel. This is due to the prostitute workers who make use of the premises for their illicit

activities and the consequent moral decadence and juvenile delinquency.

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5.2 Conclusion

Findings from this research do not depart largely from the findings of Pizam (1978), Rotham

(1978) and Haley et al (2004) that hotels induce impacts both beneficial and adverse on the

values of residential properties in close proximity.

The exceptional finding by the research student was that, property owners hardly will

consider the effects of negative externalities generated by a nearby hotel while determining

rent for their properties. Tenants on the other hand, would rather not occupy a residential

property in close proximity to a hotel with an evident negative externality; than to take up

occupation for a reduction in rent. The already occupying tenants will rather not renew

tenancy; but vacate the premises at the expiration of the current term. Prospective tenants on

the other hand are discouraged from closing tenancy deals on flats and tenement buildings

near a hotel. Consequently, hotel externalities can be concluded to cause void/vacancy in

residential properties in the neighbourhood. However, a hotel known to generate positive

externality will cause an increase in demand, which investors could take advantage of by

increasing rental value in the neighbourhood. As a result of this, the null hypothesis that hotel

externalities have no significant effects on rental value is rejected.

This result is beneficial to both public and private parties involved in land use decisions,

especially zoning. It will also assist the judiciary in resolving litigation bordering on location

of hotels within residential neighbourhood, as well as assist real estate investors in their

investment decisions; and estate surveyors and valuers in their advisory responsibilities.

Moreover, it is imperative that real estate surveyors and valuers appreciate the full

implications of externalities as part of their considerations in valuation of residential

properties. Valuers are therefore encouraged to review their valuation models to

accommodate the different sustainability scenarios as suggested by Boyd, 2005.

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It was discovered in the course of the study that the externalities effect of hotels on house rent

is both negative and positive, depending on the hotel development, size, services and

activities. It is hence recommended that government should adopt modern property control

measures such as planned unit development and performance standards. These forms of

control measures correct the flaws and rigidity of the zoning regulation by setting flexible

standards rather than the total prohibition of the zoning regulation. The modern methods

allow commercial use in a residential area, so long as it meets acceptable performance

standards. The externalities are curbed by adopting local emission limit, traffic limit and noise

limit for commercial and industrial activities.

In conclusion, it is recommended that further research needs to be carried out to establish this

conclusion for the entire metropolitan Lagos. This study examines the externality effects of

hotels on house rents. It may be necessary to also investigate the effects of hotel externalities

on the rental value of rented apartments and tenement buildings, in other neighbourhoods of

different socio-economic characteristics, as well as on other forms of residential apartments in

different locations within the metropolis. This investigation is also recommended to be carried

out on the externalities effects of hotels on the prices and rent of non residential apartments.

5.3 Recommendations

From the research carried out it was discovered that the major externalities generated by the

hotels are due to the hotel land size, the hotel services and activities, and the overall

development of the hotel. The land size of a hotel largely influences externalities such as

noise pollution, air pollution, parking problems etc. The hotel activities and services influence

externalities like employment opportunity, high crime rate, high late night population,

insecurity, moral decadence, juvenile delinquency, traffic congestion etc. The hotel

development influences externalities such as accessibility etc.

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These externalities are both adverse and beneficial, so it is reasonable to enhance the positive

while the negative externalities are mitigated, as a total prohibition will amount to losing even

the positive externality effects. It is however recommended that:

The land area the hotel occupies influences how much of noise disturbs the

neighbourhood, it determines how much of the customers' cars are parked outside the

compound. If the hotel has a parking space relative to the number of guest rooms it

has, parking issues and traffic congestion will be reduced. It is hence recommended

that the state and local government should regulate the land size and parking space of

hotels in residential neighbourhoods. Governments should also regulate the rate at

which hotels host large parties, that outshoots their parking provisions. This is to

ensure that all of the hotel activities are confined within their boundaries, thereby

reducing the negative externality effect of the hotels.

In the same vein, it was discovered in the course of this research that hotels that were

not planned; in other words hotels that are products of a conversion of use (from

residential use to commercial use) generate negative externalities. It is hence

recommended that hotels should only be allowed when such is properly planned and

incorporated into the master plan.

Late night activities by hotels in residential neighbourhoods cause high late night

population, insecurity and fear, high crime rate and moral decadence which

degenerates to juvenile delinquency. In order to mitigate this, it is recommended that

the state and local government should enact a law that regulates these late night

activities.

Prostitution in hotels located in residential neighbourhoods is an eye-sore in any

community, it is hence recommended that this should be totally abolished. Apart from

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the negative influence this has on property value, it is an immoral act. The prostitutes

should be empowered and regenerated, so they can be gainfully employed.

Many hotels usually rely on big generators to provide electricity, many of these

generators are very noisy and with very toxic emissions. To mitigate the externality

effect of noise and air pollution, it is recommended that the state and local government

should regulate the maintenance schedule of generators in hotels. Government should

go as far as stating the types of generator to be used, dictating the location of such

within the premises of the hotel as well as the positioning of the exhaust pipe. This

will ensure the use of relatively silent generators, ensure it is properly maintained so it

does not constitute a nuisance, and also limit the emission of carbon monoxide into the

environment.

The approach of most hotels to waste disposal is rather carefree, and this is not

sustainable nor enviro-friendly. It is therefore recommended that government should

regulate the waste management and disposal of hotels. Such waste management

regulations should cover wastes from the kitchen(s), bathroom wastes, wastes from

generator house(s), and soil from the toilets.

Finally, we propose that an empowerment programme should be organized by the

government to educate hotel investors and managers, on the externality effects of

hotels in the neighbourhood at large. This will empower them and enable them

become better hotel managers, as well as enable them appreciate the essence of all

these government regulations if/when established.

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5.5 Appendices

5.5.1 Questionnaires

Appendices

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