China's Rising Demand for "Green Cities": Evidence from Cross-City Real Estate Price Hedonics

28 Pages Posted: 2 May 2011 Last revised: 10 Oct 2013

See all articles by Siqi Zheng

Siqi Zheng

Samuel Talk Lee Professor of Urban and Real Estate Sustainability, Faculty Director of MIT Center for Real Estate

Jing Cao

Tsinghua University

Matthew E. Kahn

University of Southern California; National Bureau of Economic Research (NBER)

Date Written: April 2011

Abstract

With the decline of the traditional hukou system, migrants in China have a broad set of cities to choose from. Within an open system of cities, compensating differentials theory predicts that local real estate prices will reflect the marginal valuation of non-market local public goods. More polluted cities will feature lower real estate prices. But, local pollution may be caused by booming local industries. To address such endogeneity concerns, we estimate hedonic regressions using an instrumental variable strategy based on "imports" of pollution from nearby sources. By documenting the importance of spatial emissions patterns, our study highlights how real estate prices in one city are affected by Pigouvian externalities originating in another location. On average, a 10% decrease in imported neighbor pollution is associated with a 1.8% increase in local home prices.

Suggested Citation

Zheng, Siqi and Cao, Jing and Kahn, Matthew E., China's Rising Demand for "Green Cities": Evidence from Cross-City Real Estate Price Hedonics (April 2011). NBER Working Paper No. w16992, Available at SSRN: https://ssrn.com/abstract=1825773

Siqi Zheng (Contact Author)

Samuel Talk Lee Professor of Urban and Real Estate Sustainability, Faculty Director of MIT Center for Real Estate ( email )

Building 9-323
Cambridge, MA 02139
United States

HOME PAGE: http://https://siqizheng.mit.edu/

Jing Cao

Tsinghua University ( email )

Beijing, 100084
China

Matthew E. Kahn

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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