Spatial heterogeneity in spillover effect of air pollution on housing prices: Evidence from China

Abstract

This paper analyzes how the spatial spillover effects of air pollution on city-level average housing prices vary with geographical, atmospheric and institutional factors in China. By using the panel data of Chinese major cities over the period 2005–2015, our empirical estimations show that: first, the negative spatial externality of transboundary neighboring air pollution on housing prices is significant only when the distance between cities is less than 200 km, and the impact magnitude significantly declines with distance; second, the spillover effect of air pollution is sensitive to wind direction; third, the negative externality of air pollution on housing prices is significantly aggravated where there is higher ventilation intensity between the cities and lower effectiveness levels relating to local environmental governance. These findings are robust to differing model settings and differing indicators for key variables. Our estimate suggests that, on average, a doubling of the total imported air pollutants from neighboring cities less than 100 km distant will be likely to reduce local housing prices by 6%. The paper concludes with policy suggestions on how to mitigate the negative externality of transboundary air pollution through collaborative cross-boundary urban governance.