Understanding the impact of city government relocation on local residential property prices in Hangzhou, China

Abstract

Public sector relocation represents a widely adopted place-based policy by national and local governments globally, serving a range of objectives such as promoting regional balance development and stimulating local growth. At the city level, local governments often anticipate substantial economic growth in the vicinity of the new government site, leading to an increase in residential property values. The new government site not only acts as a catalyst for economic activities, employment, and the concentration of amenities but also directly influences residential property transaction prices due to its impact on the market perception. This study aims to analyze the influence of government relocation on the prices of surrounding residential properties in Hangzhou, China. Hangzhou relocated its city hall from the old city center to a new central business district near the Qiantang River between 2015 and 2016. To understand the patterns of impact on residential property prices across time and space, we employ a combination of the hedonic pricing method, the difference-in-difference approach, and dynamic effect capturing techniques. Concurrent policies and amenities are considered to isolate the specific effect of government relocation. The findings reveal spatially concentrated and temporally transient positive effects. The average treatment effect over the seven-year post-relocation period was positive (4.76%), though it did not reach statistical significance. Particularly noteworthy was the significantly positive effect (12.7%) on transaction prices within a 5 km radius of the new city hall during the first year following relocation; however, this effect diminished rapidly in subsequent years. For transactions within 1 km of the new government site, the significant positive effect persisted for five years. These findings suggest that the arrival of a major public sector entity has limited direct effects on promoting the residential property market. Furthermore, the study highlights the concentrated nature of spillover effects associated with place-based programs, indicating that the positive effects are specific to certain spatial and temporal dimensions.