Environmental Regulation as a Double-Edged Sword for Housing Markets: Evidence From the NOx Budget Trading Program

61 Pages Posted: 5 Dec 2017

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Yongheng Deng

Wisconsin School of Business, University of Wisconsin-Madison

Teng Li

Institute of Real Estate Studies

Date Written: December 1, 2017

Abstract

We investigate the effects of environmental regulations on housing markets using a quasi-experiment—the NOx Budget Trading Program (NBP). Hedonic theory predicts that house prices should rise as pollution levels decrease. However, environmental regulations may also affect labor markets, and thus housing demand. Employing a difference-in-differences framework, we find that house prices shifted up in the regulated areas with low manufacturing intensity, whereas in the areas with high manufacturing intensity, housing markets were weakened. We also find that in high-manufacturing-intensity areas, loan application volume declined, rejection rate augmented, and the probability of loan default increased.

Keywords: NOx Budget Trading Program, Air pollution, House prices, Manufacturing intensity

JEL Classification: I10, J60, L60, O18, Q52, Q53, Q58, R21, R23

Suggested Citation

Agarwal, Sumit and Deng, Yongheng and Li, Teng, Environmental Regulation as a Double-Edged Sword for Housing Markets: Evidence From the NOx Budget Trading Program (December 1, 2017). Georgetown McDonough School of Business Research Paper No. 3075855. Available at SSRN: https://ssrn.com/abstract=3075855 or http://dx.doi.org/10.2139/ssrn.3075855

Sumit Agarwal

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)

HOME PAGE: http://www.ushakrisna.com

Yongheng Deng

Wisconsin School of Business, University of Wisconsin-Madison ( email )

4110 Grainger Hall
975 University Avenue
Madison, WI 53706
United States
+1 (608) 262-4865 (Phone)

HOME PAGE: http://https://bus.wisc.edu/faculty/yongheng-deng

Teng Li (Contact Author)

Institute of Real Estate Studies ( email )

1 Arts Link, AS2 #06-02
Singapore 117570, Singapore 119077
Singapore

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