Impacts of air pollution on urban housing prices in China

In this study, we examine pollution effects on urban housing prices in China, using a fixed effects 2SLS model on a 13-year (2005-2017) panel dataset of 237 prefecture-level cities. We find that urban housing prices are negatively associated with PM2.5 levels, presenting an elasticity of - 0.32 for the entire sample. In large cities with an urban population of >= 5 million, the elasticity further increases in absolute value to - 0.34, reflecting greater marginal benefit associated with a unit percentage PM2.5 reduction in a higher pollution band. In addition, PM2.5's effects on housing markets present temporal variations, and the base elasticity of - 0.29 for earlier periods increases to - 0.33 in the post-2008 period, reflecting increased public awareness of pollution-caused health risk after the Beijing Olympic Games. In the post-2014 period, however, the elasticity declines to - 0.24 with stricter pollution regulations introduced in late 2013 as part of the 12th Five Year Plan. Rational expectations regarding continued air-quality improvement in the future may underlie this trend.