How do people price air quality: empirical evidence from Hong Kong

Abstract

We investigate how air pollution affects the transaction prices of high-rise apartments in Hong Kong. We use a three-dimensional Reynolds-stress turbulence model to simulate the air pollution level of each unit in high-rise apartment buildings in a densely populated area in Hong Kong (Study Area). We then verify the simulated results with site measurement data. Although the area is small, the variety of building forms and location of streets resulted in significant variation in air quality across apartment units. The apartments in the Study Area are actively traded and relatively homogenous. We estimate the implicit price by constructing a hedonic price model that includes the simulated apartment specific air pollution level as one of the explanatory variables. We find that the apartment prices are more sensitive to air quality in more polluted areas.