Air Pollution and the Effects on House Prices: A Push for Sustainability

Abstract

Environmental sustainability has become an important issue of concern throughout many countries. Among the many sources of concern include air pollution, the effects of which are often capitalized into house prices. In this article, we focus on air pollution in the city of Changsha, China, and the impacts of new pollution regulations on the relationship between pollution exposure and house sales prices. We use the Air Quality Index (Aqi) data from 10 air quality monitoring stations in Changsha to interpolate a previous 12-month average Aqi value for each dwelling unit in the city, based on geographical location. Controlling for important house characteristics such as the living area and the distance to the nearest subway stations, we use the Blue Sky Protection Campaign action plan (BSPC) as the quasi-natural experiment to identify the causal effect of air pollution on house prices. We find dwelling units that were previously in relatively higher-polluted neighborhoods saw their values increase by about 2% after the pollution regulation was implemented, which is statistically significant. This implies China could achieve greater housing wealth for its homeowners by implementing further pollution restrictions, both in Changsha and perhaps also in other parts of the country. Other Asian countries could potentially learn from the results of this analysis.