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Air Pollution and Housing Values in Korea: A Hedonic Analysis with Long-range Transboundary Pollution as an Instrument

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Abstract

We estimate the degree and scope of PM2.5-induced negative price shock in Korea’s local housing markets, taking a two-stage hedonic approach. For the analysis, Korea’s local PM2.5 levels are treated as endogenous and are instrumented with regional air pollutants from China. We find that a unit µg/m3 PM2.5 level increase in a Korean city is associated with a 3.7% decline in local residential property value. Long-range transboundary pollution has significant effects on Korea’s local PM2.5 levels with an elasticity of 0.05. These results enrich the sparse hedonic literature on local air-quality valuation in connection to long-range transboundary pollution in East Asia. The advanced methodological features presented in our two-staged identification strategy with a novel instrument is another contribution of this paper.

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Fig. 1
Fig. 2

Source Created by the authors from the Korea Environment Corporation (2021) and the China National Environmental Monitoring Center (2021). (Color figure online)

Fig. 3

Source Created by the authors from the Korea Environment Corporation (2021) and the China National Environmental Monitoring Center (2021). (Color figure online)

Fig. 4

Source Created by the authors from the KOSIS database. (Color figure online)

Fig. 5

Source Created by the authors. (Color figure online)

Fig. 6

Source Created by the authors from the data sets produced by van Donkelaar et al. (2019) and the Oak Ridge National Laboratory (2019). (Color figure online)

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Notes

  1. The Huai River Policy, introduced in the 1950s, offered free or heavily subsidized central heating through coal-powered infrastructure only to those Chinese households residing to the north of the Huai River (Almond et al. 2009). A legacy of the policy is the coal-based district heating system in northern China: it still plays a crucial role in winter heating and has caused discontinuous changes in PM levels across the Huai River. For this reason, several impact studies (e.g., Chen et al. 2013; Ebenstein et al. 2017) use distance from the Huai River as a running variable in their regression discontinuity design.

  2. The sixteen wind directions are 20°, 50°, 70°, 90°, 110°, 140°, 160°, 180°, 200°, 230°, 250°, 270°, 290°, 320°, 340°, 360°, which take north as the origin (0°).

  3. The queen-contiguity criterion, which defines side or vertex-sharing entities as neighbors of each polygon, assigns positive weights to neighbors and zero to others. See Lloyd (2010) for further details.

  4. \(\%\Delta y=\left({e}^{\beta }-1\right)\times 100=\left\{\mathrm{exp}\left(-0.0505\right)-1\right\}\times 100=4.9 (\%)\). It is a caveat that our semi-elasticity or elasticity estimates capture only part of the market impacts, and homeowners’ willingness-to-pay to avoid pollution-induced welfare loss is likely much larger than our estimates suggest. Accordingly, estimating more comprehensive pollution-induced welfare effects would require general equilibrium modelling or other methodological approaches specialized for them.

  5. The significant spatial lag term for the first stage suggests the existence of transboundary pollution within Korea; in fact, controlling for it provides a primary motivation for our SAR model specification. In this sense, we expect that our key results will remain the same even in the presence of local-level transboundary pollution, since the spatial lag term has already captured its effects to a large extent.

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Acknowledgements

This study was supported by the National Research Foundation of Korea through funding from the Ministry of Education (Project Number: NRF-2021S1A5A2A03063693). We also acknowledge the financial support from the University of Hong Kong Research Committee and Faculty of Architecture for Prof. Euijune Kim’s visiting research professorship at the University.

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Authors and Affiliations

  1. Department of Urban Planning and Design, The University of Hong Kong, Pokfulam, Hong Kong SAR, China

    Kyung-Min Nam & Yifu Ou

  2. Department of Agricultural Economics and Rural Development, Seoul National University, Seoul, 08826, Korea

    Euijune Kim

  3. Department of Urban Studies and Planning, Massachusetts Institute of Technology, Cambridge, MA, 02139, USA

    Siqi Zheng

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  1. Kyung-Min Nam
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Correspondence to Kyung-Min Nam.

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Nam, KM., Ou, Y., Kim, E. et al. Air Pollution and Housing Values in Korea: A Hedonic Analysis with Long-range Transboundary Pollution as an Instrument. Environ Resource Econ 82, 383–407 (2022). https://doi.org/10.1007/s10640-022-00682-1

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