Do residents care about urban dumps? Evidence from individual housing transaction data

Highlights

• We conduct a hedonic price analysis to estimate external cost of waste dumps.

• We use a difference-in-difference approach for model identification.

• New dumps significantly decrease nearby housing prices, by 5.82%.

• The economic loss bought by newly built dumps is at least $46.3 billion.

Abstract

More waste dumps are urgently needed to better cope with the surge of urban garbage and alleviate the ecological pressure on existing dumps. However, such dumps have environmental externalities. Housing transaction data and waste treatment plant data in Beijing from 2015 to 2018 were combined in this study for use in the hedonic price model to evaluate these externalities. We focus on the effects of new dumps, rather than existing dumps, on housing prices in surrounding areas to better control for omitted variable bias. The results of the difference-in-differences model show that new dumps would significantly decrease nearby housing prices by 5.82%. Our results further infer that the economic loss of the district where these new dumps are located will be at least $46.3 billion (in 2015 U.S. dollars). The above results indicate that the government should consider the adverse impacts on the surrounding residents when building new dumps.

Introduction

The growth of China’s population and the resulting increase in the amount of domestic waste and the phenomenon of garbage siege¹ have made waste particularly urgent.² In 2018, the volume of China’s domestic waste clearing and transportation reached 228 million tons, making China the largest garbage-generation country in the world.³ Facing severe garbage challenges, building new dumps to improve the operation power of urban garbage treatment systems is a more effective method in the short run than long-term methods such as changing the living habits of residents. Many dumps have been established in China since 2015, and the total number exceeded 1000 in 2017 (Fig. 1). Although dumps are essential to the daily lives of residents of a city, residents typically do not want to live close to them due to the dirty water and waste gas generated by their operation (Manfredi and Christensen, 2009). In addition, the Stigma Effect could also make surrounding residents resist dumps. Given that the need for more dumps will continue to grow, it is necessary to quantify the external impact of dumps and assess the resulting economic loss, which may provide some support for making wise decisions about building new dumps and for developing more effective policies on environmental pollution taxes.

There are many methods to evaluate the external costs of hazardous facilities, including dumps. Mainstream methods include Life Cycle Assessment (LCA), Contingent Valuation Method (CVM), and the Hedonic Price Model (HPM). The LCA method mainly collects pollutant emission factors from hazardous facilities at different stages and then builds a model to calculate the total external cost of pollutant generation. The existing literature uses this method to assess the external cost of landfills (Obersteiner et al., 2007, Manfredi and Christensen, 2009) and incinerator plants (Hellweg et al., 2001). The advantage of LCA is that it can take into account the negative externalities produced by each pollutant; its disadvantages are that it is difficult to monetize the evaluation results based on chemical-level research. In addition, many scholars estimate the external value of polluted infrastructure with CVM (Lee, 2016, Halkos and Matsiori, 2016). This method is a typical stated preference estimation method that uses surveys and asks individual’s willingness to pay for a certain change in environmental amenities or disamenities. Plenty of papers frequently apply the iterative bidding game method, open-ended question format method, payment card method, dichotomous choices method and dissonance-minimizing method to better guide the respondents to express their real feelings when using CVM. Zhou and Li (2018) posited that, despite better guidance, there are questionnaire design errors, hypothesis errors, strategic errors and embedding errors in the application, which could make the results biased.

The third type of estimation method is the HPM, in which the bundled goods of properties consist of various attributes and the implicit prices of these various characteristics determine the sale price of the property. Thus, the implicit price of the waste dumps can be derived through the total value of the properties. The benefit of the HPM is that it can monetize the externalities of pollution facilities without relying on the information feedback from questionnaire surveys but rather directly through housing transaction prices, which makes the evaluation results less susceptible. This method is frequently adopted to measure the impact of atmospheric pollution (e.g., Batalhone and Nogueira, 2002; Saphores and Aguilar-Benitez, 2005), green spaces (Garrod and Willis, 1992, Sander et al., 2010), wind power stations (Sunak and Madlener, 2015; Gorelick, 2014), hazardous waste sites (Ketkar, 1992, McCluskey and Rausser, 2003, Mei et al., 2019), unconventional oil and gas development (Boslett et al., 2016, Boslett et al., 2019, Delgado et al., 2016, Weber et al., 2016), environmental noise (Zambrano-Monserrate and Ruano, 2019), mining (Rivera, 2020), water resource management (Liu, 2020), estuary pollution (Zambrano-Monserrate and Ruano, 2021) and peri-urban nature (Jensen et al., 2021). It has also been used to assess the external value of garbage plants, including waste burning plants (Casado et al., 2017), waste transshipment plants (Eshet et al., 2007), and landfills (Lim and Missios, 2007, Ham et al., 2013). Nevertheless, little has been done to explore the relationship between property prices and newly built dumps in China. This paper uses the Hedonic Price Method to evaluate the externalities of new garbage dumps based on housing transaction and dumps data in Beijing from 2015 to 2018, including the physical attributes of a property, neighborhood characteristics and attributes of garbage treatment plants. We implement a Difference-in-Difference approach (DID) to control for omitted variable bias and further rely on district- and year-fixed effects to control for more time-invariant and spatial-invariant unobservable variables. The results show that the new dump will reduce surrounding housing prices by 5.82%, which is valid at the significance level of 10%. Overall, the findings indicate that the new dumps have generated some decline in Beijing’s housing prices. The new dumps established between 2015 and 2018 created external economic losses in Beijing of approximately $46.3 billion (in 2015 $), accounting for 0.34% of Beijing’s GDP in 2018 ($136.8 billion).

This paper contributes to the literature through the following aspects. First, compared with previous studies focusing on the external impact of existing dumps or the cleanup of dumps, this paper attempts to estimate the effect of new dumps on surrounding housing values. This is vital because newly built dumps are exogenous shocks to identify the causal effects of waste dumps’ externalities on housing values, which helps the relevant government agencies to better select new sites of refuse treatment plants. Moreover, newly built dumps are a better quasi-experiment than existing dumps. Second, this paper considers the external effects of various types of dumps in Beijing, which makes the research results more comprehensive.

The rest of the study is organized as follows. Section 2 reviews and summarizes the literature on the externality of waste treatment plants. Section 3 presents the specific model setting. Section 4 elucidates the research areas and data sources. Section 5 analyzes and discusses the results of the model and presents relevant policy recommendations. Section 6 provides the conclusion.