Capitalization of social infrastructure into China's urban and rural housing values: Empirical evidence from Bayesian Model Averaging

Abstract

Educational, healthcare, recreational infrastructure and rapid urbanization are placing pressure on China's housing prices and rents. Existing literature mostly studies economic infrastructure of big cities, but little involves different types of social infrastructure and their impacts on rural areas. Using data from China Labor Force Dynamic Survey (CLDS), we conduct hedonic analysis by applying Bayesian Model Averaging. We find that the accessibility of education, healthcare and recreational amenities are capitalized in housing values, and there is urban-rural heterogeneity in such capitalization. Families' education levels and health statuses can magnify such capitalization because the more highly families think of such amenities, the greater premium they are willing to pay. This study reveals the ordinal importance of social infrastructure to housing values and has a significant implication for real estate of developing countries.