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Real Estate Valuation and Cross-Boundary Air Pollution Externalities: Evidence from Chinese Cities


  • Siqi Zheng


  • Jing Cao


  • Matthew Kahn


  • Cong Sun



Within an open system of cities, compensating differentials theory predicts that local real estate prices will be higher in cities with higher quality non-market local public goods. In this case, more polluted cities will feature lower home prices. A city’s air pollution levels depend on economic activity within the city and on cross-border pollution externalities. In this paper, we demonstrate that air pollution in Chinese cities is degraded by cross-boundary externalities. We use this exogenous source of variation in a city’s air pollution to present new robust estimates of the real estate impact of local air pollution. We find that reductions in cross-boundary pollution flows have significant effects on local home prices. On average, a 10 % decrease in imported neighbor pollution is associated with a 0.76 % increase in local home prices. We also find that the marginal valuation of clean air is larger in richer Chinese cities, and hukou barrier of labor migration has been further phased out. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Siqi Zheng & Jing Cao & Matthew Kahn & Cong Sun, 2014. "Real Estate Valuation and Cross-Boundary Air Pollution Externalities: Evidence from Chinese Cities," The Journal of Real Estate Finance and Economics, Springer, vol. 48(3), pages 398-414, April.
  • Handle: RePEc:kap:jrefec:v:48:y:2014:i:3:p:398-414 DOI: 10.1007/s11146-013-9405-4

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    References listed on IDEAS

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    Blog mentions

    As found by, the blog aggregator for Economics research:
    1. Pollution Self Protection Investment in China and Quality of Life Inequality
      by Matthew Kahn in Environmental and Urban Economics on 2016-12-28 20:27:00
    2. The Economics of Pollution Exposure
      by Matthew Kahn in Environmental and Urban Economics on 2017-06-09 22:07:00


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    Cited by:

    1. Rickman, Dan S. & Wang, Hongbo, 2016. "Regional Housing Supply Elasticity in China 1999-2013: A Spatial Equilibrium Analysis," MPRA Paper 69157, University Library of Munich, Germany.
    2. Kahn, Matthew E. & Walsh, Randall, 2015. "Cities and the Environment," Handbook of Regional and Urban Economics, Elsevier.
    3. repec:eee:enepol:v:109:y:2017:i:c:p:884-897 is not listed on IDEAS
    4. Dan S. Rickman, 2014. "Assessing Regional Quality of Life: A Call for Action in Regional Science," The Review of Regional Studies, Southern Regional Science Association, vol. 44(1), pages 1-12, Spring.
    5. repec:spr:anresc:v:58:y:2017:i:2:d:10.1007_s00168-016-0783-4 is not listed on IDEAS
    6. Rickman, Dan S. & Wang, Hongbo, 2015. "Regional Housing Supply Elasticity in Spatial Equilibrium Growth Analysis," MPRA Paper 65148, University Library of Munich, Germany.
    7. Siqi Zheng & Matthew E. Kahn, 2017. "A New Era of Pollution Progress in Urban China?," Journal of Economic Perspectives, American Economic Association, vol. 31(1), pages 71-92, Winter.
    8. Iris Claus & Les Oxley & Siqi Zheng & Cong Sun & Ye Qi & Matthew E. Kahn, 2014. "The Evolving Geography Of China'S Industrial Production: Implications For Pollution Dynamics And Urban Quality Of Life," Journal of Economic Surveys, Wiley Blackwell, vol. 28(4), pages 709-724, September.
    9. Wenjie Wu & Guanpeng Dong & Bing Wang, 2015. "Does Planning Matter? Effects on Land Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 50(2), pages 242-269, February.
    10. Funke, Michael & Leiva-Leon, Danilo & Tsang, Andrew, 2017. "Mapping China’s time-varying house price landscape," BOFIT Discussion Papers 21/2017, Bank of Finland, Institute for Economies in Transition.
    11. Sun, Chuanwang & Yuan, Xiang & Yao, Xin, 2016. "Social acceptance towards the air pollution in China: Evidence from public's willingness to pay for smog mitigation," Energy Policy, Elsevier, vol. 92(C), pages 313-324.
    12. Sun, Cong & Kahn, Matthew E. & Zheng, Siqi, 2017. "Self-protection investment exacerbates air pollution exposure inequality in urban China," Ecological Economics, Elsevier, vol. 131(C), pages 468-474.
    13. Xuan Huang & Bruno Lanz, 2015. "The value of air quality in Chinese cities: Evidence from labor and property market outcomes," CIES Research Paper series 38-2015, Centre for International Environmental Studies, The Graduate Institute.
    14. Yunlong Gong & Peter Boelhouwer & Jan de Haan, 2016. "Interurban house price gradient: Effect of urban hierarchy distance on house prices," Urban Studies, Urban Studies Journal Limited, vol. 53(15), pages 3317-3335, November.
    15. Zhan Wang & Xiangzheng Deng & Cecilia Wong, 2016. "Integrated Land Governance for Eco-Urbanization," Sustainability, MDPI, Open Access Journal, vol. 8(9), pages 1-16, September.
    16. Wang, Hongbo & Rickman, Dan S., 2017. "Housing Price and Population Growth across China: The Role of Housing Supply," MPRA Paper 79641, University Library of Munich, Germany.


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