The Effect of Perceived Air Quality on Values of Real Assets : Evidence From an Environmental Policy Shock in South Korea

This paper explores how perceptional changes in exposure to air pollution impact the values of real assets in a housing market. Given a revised air pollution standard due to an environmental policy shock in South Korea, the existing indicators show air quality generally gets lower than before, guiding people to perceive more of the seriousness of the surrounding air pollution. Using data on nearly 1.5 million transactions of residential properties during 2016-2018, we employ a modified difference-in-difference (DID) and comprehensively examine the effects of changes in perceived risks of air pollution on home prices. Our empirical results suggest that an additional labeling change from ``normal" to ``bad" lowers the average housing price by nearly 0.27%, controlling for the actual air pollution levels. Moreover, these label-related impacts are consistent with varying periods during which air pollution is perceived. It is also found that the impacts remain significant for different types of housing contracts. The empirical findings advance the understanding of how public information on air pollution could be capitalized in the housing market and have profound implications for long-term urban planning