Public and Private Provision of Clean Air: Evidence from Housing Prices and Air Quality in China

38 Pages Posted: 20 Aug 2018 Last revised: 11 Nov 2019

See all articles by Lin Zhang

Lin Zhang

City University of Hong Kong (CityUHK)

Huanhuan Zheng

National University of Singapore

Date Written: November 8, 2019

Abstract

We explore the dynamic interaction between housing prices and air quality in a growing economy with changing preferences using panel vector auto-regression. Using Chinese data, we document robust evidence that better air quality is rewarded by the market with higher housing prices and that faster housing price growth in turn contributes to further air quality improvements. The positive impact of housing price growth on air quality is stronger for more developed areas such as eastern China, first-tier cities, and housing markets that grow faster than the median. From a time-series perspective, the contribution of housing prices to air quality improvements has been more pronounced since the Global Financial Crisis, when landscape architecture and energy efficiency gained prominence in real estate development. Further analysis reveals that higher housing price growth improves air quality by motivating public and private investment in environmental protection and enhancement that subsequently leads to better air quality.

Keywords: housing prices; air quality; private provision of public goods; panel vector auto-regression

JEL Classification: O18; Q50; Q53; R31

Suggested Citation

Zhang, Lin and Zheng, Huanhuan, Public and Private Provision of Clean Air: Evidence from Housing Prices and Air Quality in China (November 8, 2019). Available at SSRN: https://ssrn.com/abstract=3214297 or http://dx.doi.org/10.2139/ssrn.3214297

Lin Zhang (Contact Author)

City University of Hong Kong (CityUHK) ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

Huanhuan Zheng

National University of Singapore ( email )

469C Bukit Timah Rd
NUHS Tower Block Level 7
Singapore, 259772
Singapore

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