Abstract
Air pollution is a major environmental issue in China. This paper exploits the relocation of two major power plants in a large Chinese city as a quasi-natural experiment to examine the effect of changes in the quality of the environment on the housing market. We use an extensive transaction dataset of new apartment units in the affected and neighboring areas. We find that the plants’ closure is associated with a 12–14% increase in prices and 13–31% rise in the volume of transactions in neighborhoods within five kilometers of the plants. We further observe a higher change in prices among more expensive houses. The estimated monthly aggregate effect of the closures on the local housing market is over 50 million US dollars during the first 2 years after the relocations.
Highlights
Air pollution in China has reached critical levels in recent years, representing a major health and environmental concern across most urban areas in the country
According to the Ambient Air Pollution report released by the World Health Organization (WHO) in 2016, China is among the most polluted countries in the world with annual average concentrations of fine particulate matter (PM) four to five times higher than the levels recommended by the WHO in their Air Quality Guidelines
The different attributes and amenities available in the new apartment complexes built in the areas closer to the plants could have relatively increased after the relocations thereby further increasing prices, and we explore this potential effect on prices in the empirical results
Summary
Air pollution in China has reached critical levels in recent years, representing a major health and environmental concern across most urban areas in the country. Based on the Ambient Air Pollution report from the WHO (2014), the annual mean concentration of fine particulate matter in Chengdu is around 102 μg/m3 for particles smaller than 10 μm in diameter or microns (PM10) and 47 μg/ m3 for particles smaller than 2.5 microns (PM2.5).11 These air pollution levels are higher than the levels for 91 out of the 112 Chinese cities included in the report and significantly higher than the WHO Air Quality Guidelines annual mean values of 20 μg/m3 for PM10 and 10 μg/m3 for PM2.5. As part of the plan to reduce outdoor pollution and improve air quality in Chengdu, the Eleventh Five-Year Plan of the city for the period 2006–2010, released in early 2006, identified thermal power plants, metallurgy, light industries (including leather, textile, paper making and food manufacturers) and chemical and pharmaceutical industries as the major industrial sources of pollution.. The plants had become a symbol of dirt, contamination and disorder in the area and were the major single source of pollution in the area, generating immense quantities of soot, dust and other toxic residues, and emitting large amounts of sulfur dioxide, nitrogen oxides, and some radioactive and heavy metals.
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