Siqi Zheng, Jing Cao and I have written a new paper about the demand for clean air in China’s major cities. China’s cities are very polluted, but their pollution levels have been falling in recent years. Common sense suggests that as their urbanites become richer that they will demand the same “blue skies” that we take for granted in the United States. With the decline of the Chinese hukou system, cross-city migration is on the rise in China and people can “vote with their feet”. Those cities that have low quality of life will lose their skilled and won’t attract other skilled workers to replace them. Using standard statistical techniques, we document that home prices are higher in those cities with cleaner air and that this price premium is rising over time. We show how to use cross-boundary pollution “spillovers” to provide plausibly exogenous variation in local air pollution to estimate how this disamenity affects real estate prices. A naive approach that simply correlates local air pollution with local home prices might find a positive correlation as those cities that are booming will have higher home prices and higher pollution levels.
From reading the comments posted on my RBC blog posts, I see that economics is not everyone’s favorite field. I am married to an economist and I’m growing increasingly concerned that my 9 year old son may enter the family business. I have been working on the broad topic of “Green Cities”. for several years now. In 2006, Brookings published my book; Green Cities: Urban Growth and the Environment . You can read Chapter One. With Siqi Zheng, I am preparing to write a new version of this book solely focused on China’s cities.
I realize that the study I cite above focuses on cross-city variation. In this 2008 paper , Siqi Zheng and I use unique project level data within Beijing to document similar patterns. Households value proximity to green space, clean air and proximity to subway stops. Here is the paper’s abstract:
Beijing’s housing market has boomed over the last fifteen years. The city’s population grew by 40.6% and per capita income (in constant RMB) by 273.9% from 1991 to 2005. Using two geocoded data sets, we present new evidence on the real estate price gradient, land price gradient, population densities, and building densities in Beijing’s recent free housing market. The classic urban monocentric model’s predictions are largely upheld in Beijing. We also document the importance of local public goods, such as access to public transit infrastructure, core high schools, clean air, and major universities, most of which have exogenous locations, as important determinants of real estate prices.