Air pollution

Air pollution

Air pollution is the release of pollutants into the air that are harmful to live beings and the planet. Air pollution is considered an environmental variable that affects the wellbeing of inhabitants (Le Boennec, & Salladarré, 2017). The causes of air pollution come from energy use and production (Air Pollution: Everything You Need to Know, 2020). The scorching of fossil fuels releases chemicals and gases into the air. These harmful gases corrode the ozone layer causing global warming and adverse climate change (Air Pollution: Everything You Need to Know, 2020). Air pollution in the form of carbon monoxide raises the earth’s temperature causing the melting of the ice caps. The impacts of air pollution affect the financial, economic, and social aspects of everyday societal life. This paper will focus its research on the impact air pollution has on real estate, specifically the impact of air quality on house prices in thirty cities in China.

Congestion is one of the significant factors that affect the quality of air and the value of property within the congested region. Land appraisers speculate that air pollution has a detrimental effect on property value (Nourse, 1967). According to Marshall (1920), the population concentration in any given area threatens the scarcity of fresh air, light, and playroom. This concentration results in lowered vigor and joy within the upcoming generation. Marshall (1920) further notes that any land, urban, or not should be regarded as having a unique site value. This value is set to increase if the congested buildings on it are cleared. The increase in value subjected to a general rate assessed on its capital value (Marshall, 2020). The improved fresh air rate would translate to a higher value for the remaining buildings.

Nourse (1967) notes that evidence pointing towards the effects of air pollution on real estate and house values is minimal despite Urban land economists and real estate appraisers making general comments on the nuisance of air pollution. Urban economists and real estate appraisers note that neighborhoods with a significant amount of air pollution are a less desirable place to live in (Nourse, 1967). Hurd (1924) suggests that the basis of residence is social and not economical, even though the land is given to the highest bidder. The wealthy will select locations that please them with the middle class settling as near as possible to these locations (Hurd, 1924). The lower and poor will end in what is left, and in most cases, these sites are filled with nuisances, among them air pollution. An example of such a place would be near a factory that emits hazardous gases. The physical presence of manufacturing plants, factories, or any other entity that issues air pollution near a neighborhood depreciates homes’ value.

However, these judgments are based on the general observation of the real estate markets and the responses of potential clients rather than any attempt to provide a statistical estimate of the extent of damage caused to the house values by air pollution (Nourse, 1967). Nourse suggests that an extensive analytical study is necessary to estimate the actual social costs of air pollution incurred by the real estate agents and homeowners. The relationship between housing value and air quality has been a subject of economic interest and study since the 1960s. The use of hedonic price models shows a negative correlation between housing prices and air pollution indices (Ridker et al. 1967). However, the hedonic models experience several econometrical problems, including the omitted variable bias (Behbahani & Nafari, 2017). Studies have suggested using policy regulations as variables for change to address the econometric issues and correct air pollution levels.

There have been numerous studies on the relationship between air quality and housing prices in several sections of the world since 1967 (Lui et al., 2018). Scholars carried out extensive studies on the connection between air quality and housing prices based on real estate market transaction data in the U.S. and Europe (Lui et al., 2018). Such scholars undertook a review of this literature. They found that, since the beginning of the 21st century, with further deterioration of the environment and the improvement of health awareness among the general population, more research has focused on the relationship between air quality and housing prices.

Air pollution has become a fundamental problem in China, and the fog has become a grave pollution issue as a result. Increased environmental mindfulness and good life quality among the general population, air quality problems are expected to gradually affect the flow of social talents and economic elements in society (Lui et al., 2018). The intensification of haze pollution will further reinforce its influence on the flow of social resources. “Many experienced foreign investors with technical expertise and experience will consider moving to less polluted areas if air pollution within cities such as Chengdu can’t be solved properly” (Liu et al., 2018). The presupposition reflects the impacts of fog on the residential areas where people choose to settle; air quality directs occupants’ decisions on housing. People residing in the city have to contemplate how to find relatively healthy dwellings in a city severely affected by the haze (Lui et al., 2018). As a result, people tend to choose their living areas according to their earnings and preferences for air quality.

Urbanization and industrialization in China contributed to harshly contaminated air in most Chinese cities. Seven of the world’s ten cities with worse air quality were located in China (Zhang and Crooks, 2012) in 2011, and daily concentration of suspended particulate matter in 84 major Chinese cities averaged 118µg/m3 (M.E.P. 2012), more than five times the level at which mortality risks are known to increase. Despite that, frequently proposed measures to alleviate air pollution comprise restructuring the structure of primary energy use and sectoral economic activities (Guan and Liu 2014), which are linked with concerns about high costs and adverse effects on economic growth. It is, therefore, essential to provide evidence about the economic value of air quality improvements.

The Chinese economy’s partial liberalization in the 1990s and the labor and property markets saw many workers crowd into more developed regions and cities. Labour flexibility and the related location decisions are directly associated with the appearance of a system of open ports (Zheng et al., 2010), and in turn, to spatially unique demand for housing across Chinese cities. Given this, empirical studies on housing prices have applied the hedonic property value model to measure resident facilities’ capital in house prices, including air pollution. These papers offer supporting evidence that inhabitants’ vote with their feet’ (Tiebout 1956), with market prices altering to reflect the dominant supply of local facilities in diverse urban areas. Location choices will affect both labor and property market results in a system of capitals in which persons and firms are mobile.

China has experienced a large-scale and fast urbanization growth spurt over the last three decades. The record shows an urbanization increase rate from 17.9% in 1978 to 58.5% in 2017 (Zou, 2019). This fast growth suggests that more than 500 million people had relocated to urban areas over the period (united nations 2013). The urban migration brought about robust economic growth allowing the country to maintain an average gross domestic product growth rate of approximately 8% growth. This exponential commercial growth rate has, however, relied heavily on fossil fuel. The further growth of population and urbanization have resulted in high vehicle consumption. China consumed 288 million vehicles up from 16.9 million from the years 2000 to 2017. These factors have profoundly contributed to China’s high ambient air pollution in many Chinese cities (Zou, 2019). The high levels of pollution have recently attracted the attention of international media outlets and the world. The air pollution does not only affect the health of inhabitants, but it also affects the housing value in two ways. The first hypothesis is that air pollution causes the house quality to deteriorate and value appreciation to accelerate. The second hypothesis suggests that long term continuous exposure of polluted air may cause the homeowners and residents’ health to deteriorate, reducing their productivity.

The housing privatization reform in 1988 allowed a significant number of Chinese households to own homes. The homeownership rate in urban china increased to 89.68% in 2012, and the value of housing accounted for 66.4% of middle-level income household’s total assets (Zou 2019). These numbers suggest that families cared much about the variation of their home values. Zou (2019) further indicates that the government has expressed concern about housing prices since the real estate sector became their primary revenue source. A right amount of literature has analyzed the factors that may be affecting housing prices in urban China, and researchers support the notion that housing prices can be viewed as a function etched within city attributes and local public amenities that include air pollution (Zou, 2019). The majority of the researchers, however, have not considered the effects of air quality. This lack of consideration is partly because reliable air quality data was not available in China until recently. The majority of literature that exists makes use of the global ordinary least square (O.L.S.) model and disregards the effects of spatial heterogeneity concerning cross-sectional studies.

Numerous studies have been conducted on the Chinese housing market and housing price problems. Still, most of them have not included air pollution as a control variable, resulting in underestimating the advantages air quality brings to the real estate industry. The underestimation was due to air quality data not being available until recently (Zou 2019). However, emerging research regarding air quality has seen researchers look into the effects of air pollution after the Chinese government began reporting air quality data. This research has yet been limited to and focused on the effects air pollution has on human health. For example, Zhang et al. (2013) and Long et al. (2014) examined the probable population contact to PM2.5 in Beijing and countrywide, respectively. A discovery made by Chen et al. (2013) found that long-term contact with suspended particulates reduces life expectancies in Northern China by 5.5 years.

There are only a minority of studies that have examined the influences of air pollution on the housing market. Even these studies considered only a portion of cities, partly due to confines concerning the accessibility of housing price data at the prefecture-city level. For instance, Zheng et al. (2010) studied housing prices, foreign direct investment (FDI) flows, and air quality in 35 major cities and Zheng et al. (2014) extended the detailed analysis to 85 cities. Considering that there are roughly 300 prefecture-level cities in China, it would be of substantial worth to conduct an empirical study on the relationship between air pollution and housing markets that cover most towns. The bulk of the literature that exists on China’s housing market employs usual, global econometric models, such as the O.L.S. model, which fails to address difficulties arising from the characteristic spatial effects in cross-sectional data such as spatial heterogeneity. Spatial heterogeneity, or spatial non-stationarity, means that the regression model’s parameters might not be continuous within a geographic area. A variety of research approaches has been discovered to address spatial heterogeneity effects, including an expanded method, a spatial adaptive filtering method, and a multilevel modeling method. The hedonic way and the two-stage least squares (2SLS) regression analysis method will be vital in determining the impact of air pollution on housing prices in 30 cities within China. Lui et al. (2018) researched Chengdu district in china, to determine the relationship between haze and housing prices using the S.E.M. (Spatial Error Model) and S.L.M. (Spatial Lag Model).

Zheng and Khan (2017), in their study, note that Major cities in China, such as Beijing and Shanghai, have experienced improvements in urban air pollution. This improvement is associated with the global initiation to go green and save the environment. As China is one of the most polluted countries globally, consumers looking to settle in any city in China will consider the air quality before anything else. Lui et al. (2018) noted that research on air quality in a region sets out to investigate consumers’ willingness to pay for a reduction in air pollution and the effects of this preference on housing prices.