Good regulation vs bad regulation

One of the common complaints about ESG investing is that it simply adds another layer of regulation and bureaucracy to the investment process. And while I think that in Europe the ESG space is overregulated, not all government regulation is bad. Some can even increase wealth.

Think of an area that we usually don’t pay attention to in the ESG space: noise. Excessive noise from traffic or construction creates more than just a nuisance. Persistent exposure to loud noise can make people sick. Hence, the government’s job is to regulate acceptable noise levels and demand employers supply workers with ear protectors, etc., if they are working with noisy equipment.

But what about people who live next to a busy road? They face that noise all the time, which is why there are regulations in Europe that require noise reduction measures like walls to be built if a road passes areas where people live.

If you drive through Europe or the UK, you see these noise walls and mounds everywhere, but I cannot remember seeing them in the US that often. I don’t know if there are regulations in the US about noise pollution, but generally speaking, my experience is that in the US, noise pollution seems higher because nobody takes steps to reduce it.

But what if they do?

Enrico Moretti and Harrison Wheeler looked at the correlation between house prices and ambient noise levels. No surprises there. The more noise, the less valuable the house.

Correlation between house prices and ambient noise levels

Source: Moretti and Wheeler (2025)

Of course, richer people try to avoid living on a noisy street, so they buy a more expensive home in a quiet side street or cul-de-sac, while poorer households can’t afford those houses and thus are more affected by noise.

If there are noise reduction measures put in place, house prices in the areas that have seen noise levels decline immediately jump. The study finds that house prices within 100m of a new noise barrier jump by 6.8% in the year after the barrier is installed. Extrapolated to the whole United States, they estimate that the nationwide cost of noise pollution in the form of lower property values is some $110bn, which could be unlocked if communities were to build noise barriers.

Property prices increase after noise barriers are installed

Source: Moretti and Wheeler (2025)

But here is the interesting thing that I didn’t think of before (probably because I live on a quiet street in a leafy neighbourhood of London). The energy transition is already reducing traffic noise levels.

Electric vehicles are obviously much quieter than cars with internal combustion engines, and the more we replace ICE cars with EVs, the quieter our streets will get. As a result, the more property prices will rise for houses close to busy streets (now here is an idea for how to make money as a property developer). For the US, the study estimates that the widespread adoption of EVs could increase property values by a collective $77bn.

Shame, though, that in the US the transition to EVs is far behind what we experience in Europe or Asia. If I were a homeowner in the US, I would lobby for faster adoption of EVs.