The value of air quality in housing markets: A comparative study of housing sale and rental markets in China

Given air pollution has multidimensional adverse effects, the relation of air quality and housing markets have attracted increasing attention in the last few years, particularly in China. However, these studies mainly focus on the housing sale market and neglect another key housing market-the housing rental market. This paper aims to comprehend air quality's effects in China through a comparative view by quantifying the capitalised benefits of air quality improvement in housing sale prices and rents in 283 cities from 2014 to 2018. The empirical results show that renters and homebuyers do value air quality improvements, and their preferences for air quality are homogeneous. This supports the similarity of the environmental preferences hypothesis in which cleaner air is a type of environmental amenity to all residents, including both homebuyers and renters. The finding is robust to different submarkets in which both homebuyers and renters value air quality similarly in different regions. However, the impact of air quality varies across submarkets in that large and medium cities are more sensitive to air quality, while air quality shows little effects on small cities. The differences across cities highlight the significance of submarket analysis, and the policy implications are also discussed.