1# RECORD 3e2f420e36b96c93f3636cc35296dc7c694146872# TITLE: Effect of Air Quality Improvements on Apartment Prices in Seoul: Application of Spatial Hedonic Price Model and Interpolation Method3# YEAR: 2013.0 VENUE: nan DOI: 10.2457/srs.43.1634# AUTHORS: K. Nam; Jiao Son; Brian H. S. Kim5# PAGES: 13 CANDIDATE TABLE PAGES (1-based): [5, 8, 9, 11]6# ABSTRACT: nan789===== PAGE 1 (score 15, numeric-paren 0, table-words 0, var-words 15) =====1011Studies in Regional Science, Vol. 43, No. 2, 2013, 163-175.1216313Effect of Air Quality Improvements on Apartment Prices in Seoul : 14Application of Spatial Hedonic Price Model and Interpolation Method15Kichan Nam*, Ji-Wan Son** and Brian H.S. Kim***16Abstract17 Using a spatial hedonic price model, this study estimated the elasticity and the implicit marginal costs of 18variables related to air pollutants that may affect apartment prices in Seoul. Spatial econometric and interpo-19lation methods were employed to estimate the benefits of changes in the concentrations of air pollutants. 20Previous studies showed that dependence, spatial heterogeneity, and air pollution concentrations can be 21addressed with the use of these methods. The average marginal willingness to pay with a 10% improvement 22in PM10 concentration is approximately 233,800 won (US$187.0) to 303,800 won (US$243.0) per month. 23With a healthy concentration (18.15% reduction), the average marginal willingness to pay is approximately 24424,300 won (US$339.4) to 551,400 won (US$441.1) per month. Therefore, environmental factors can be 25important determinants of housing prices in Seoul.26JEL Classification : R00, R15, Q5327Keywords : Spatial Hedonic Price Model, Spatial Interpolation Model, Criteria Air Pollution, Marginal Willing-28ness to Pay291. Introduction30Cities are major political, economic, social, and cultural centers. However, people have become 31increasingly concerned with the pace of growth and the development of cities. Heavy population con-32centrations and the increase in the number of conurbations have resulted in undesirable environmental 33and health consequences. Rapid development has also transformed many urban areas into metropoli-34tan areas with diverse cultures, ethics, and infrastructures. Natural habitats and green spaces are dis-35appearing, along with problems in air and water pollution, diseases, and heat island effect. Therefore, 36the concept of environmentally sound and sustainable development has received growing interest.37With a population of more than 10 million people, Seoul confronts many environmental and public 38health problems. Air quality is one of Seoul’s main environmental problems. The city suffers from 39poor air quality and poor visibility because of the smog formed from suspended particulate matter 40throughout the year. Ozone (O3) levels, which have also been increasingly high, are way above those 41allowed according to Seoul’s ambient air standards. The rapid increase in motor vehicles since the 42late 1980s has gradually changed the major pollutants in Seoul from sulfur dioxide (SO2) to nitrogen 43 * Korea Research Institute for Human Settlement, 254 Simin-daero, Dongan-gu, Anyang-si, Gyeonggi-do, 431-44712, Korea45 ** Kyeryong Construction Industrial Co., LTD, Wolpyeongjung-ro 21 Beon-gil, Seo-gu, Daejeon, 302-717, Korea46*** Department of Agricultural Economics and Rural Development, Research Institute for Agriculture and Life Sci-47ences Seoul National University, 1 Gwanangno, Gwanak-gu, Seoul 151-921, Korea48 E-mail : briankim66@snu.ac.kr Phone : 82-2-880-4717 Fax : 82-2-873-508049Received : 23rd August, 2012 Accepted : 8th April, 201350Ⓒ日本地域学会(JSRSAI) 2013515253===== PAGE 5 (score 23, numeric-paren 0, table-words 4, var-words 10) =====545516756Effect of Air Quality Improvements on Apartment Prices in Seoul57Table 1. All Variables58Variables59Name60Description61Unit62Dependent Variable63PART64Price of apartment65million won66Independent67Variables68Housing69M270Area of apartment71m272HEAT_D73Heat type74(1=individual heating, 0=central heating)75Dummy76CORRI_D77Corridor type78(1=stairway type, 0=corridor type)79Dummy80BATH81The number of bath82#83Complex84YEARS85Apartment age86Year87YEARS288Re-development index89Year290SIZE91The size of complex — total number of apartment 92units in the complex93Household94BRAND_D95Brand of apartment96(1=well known brand, 0=the others)97Dummy98Neighborhood99SCHOOL100College entrance rate101%102SUBWAY103Distance to nearest station104meter105GRDPC106Gross regional domestic product per capita107million won108Environment109SO2110Sulfur Dioxide111ppm112NO2113Nitrogen Dioxide114ppm115O3116Ozone117ppm118PM10119Particulate Matter120μm/m3121CO122Carbon Monoxide123ppm124Table 2. Descriptive Statistic125Variables126Name127Mean128Min,129Max.130Stand.131Deviation132Dependent Variable133PART134599.57135150.001363,200.00137371.37138Independent139Variables140Housing141M2142113.2714353.00144212.0014523.37146HEAT_D1470.69148–149–1500.46151CORRI_D1520.88153–154–1550.32156BATH1571.81158115931600.40161Complex162YEARS1639.461640165331667.07167YEARS2168139.3616901701089171205.92172SIZE173750.57174631755540176822.61177BRAND_D1780.35179–180–1810.48182Neighborhood183SCHOOL1840.731850.601860.811870.05188SUBWAY189800.92190701916027.00192886.97193GRDPC1942.591952.181963.561970.30198Environment199SO22000.012010.012020.012030.001204NO22050.022060.022070.022080.002209O32100.042110.032120.042130.003214PM1021561.0821655.4821768.962183.34219CO2200.682210.462220.822230.06224225226===== PAGE 6 (score 5, numeric-paren 0, table-words 0, var-words 5) =====227228Kichan Nam, Ji-Wan Son and Brian H.S. Kim229168230m2). With regard to the apartment’s number of years, the sample (9.46 years) had only a year differ-231ence with Seoul’s average (10.53 years). The state of the education system also strongly affects 232apartment price in Korea. One of the indicators that reflect this is the college entrance rate of the 233region. The selected sample household’s college entrance rate is about 73%. Other important inde-234pendent variables are distance to public transportation and per capita GRDP (about 800 meters and 2.6 235million won, respectively, for sampled households).236Criteria air pollutants are used to reflect the regional environmental variable. Figure 2 shows 237that each criteria air pollutant is diversely distributed in SMA. The average concentration for these 238air pollutants is 0.007 ppm for sulfur dioxide (SO2), 0.02 ppm for nitrogen oxide (NO2), 0.038 for ozone 239(O3), 0.684 ppm for carbon monoxide (CO), and 61.084 μm/m3 for particulate matter (PM10). These 240 241 242(a) SO2 243(b) O3 244 245 246(c) NO2 247(d) CO 248 249 250SO2 251 252O3 253 254NO2 255 256CO 257 258PM10 259 260(e) PM10 261 262Figure 2. Distribution of criteria air pollutants in Seoul (Spatial Interpolation Result)263264265===== PAGE 8 (score 118, numeric-paren 90, table-words 4, var-words 2) =====266267Kichan Nam, Ji-Wan Son and Brian H.S. Kim268170269Table 4. Regression Results270Model271Base Model272Spatial Error Model (Distance=5 km)273OLS Robust274Estimation275OLS276ML277GM278(2-step)279GM (Iterated)280White Variance281λ2820.970283(0.018)284**2850.983286−287**2881.120289−290**291Constant2929.998293(0.322)294**2959.811296(0.322)297**2989.588299(0.623)300**3019.926302(0.340)303**3049.998305(0.335)306**307M23080.013309(0.001)310**3110.011312(0.001)313**3140.011315(0.001)316**3170.011318(0.001)319**3200.011321(0.001)322**323HEAT_D324−−0.148325(0.029)326**327−0.129328(0.024)329**330−0.131331(0.024)332**333−0.123334(0.023)335**336−0.163337(0.034)338*339CORRI_D3400.178341(0.041)342**3430.139344(0.033)345**3460.146347(0.033)348**3490.136350(0.033)351**3520.167353(0.049)354*355BATH356−0.026357(0.034)3580.001359(0.029)3600.004361(0.029)3620.005363(0.028)364−0.034365(0.035)366YEARS367−0.031368(0.006)369**370−0.029371(0.005)372**373−0.031374(0.005)375**376−0.030377(0.005)378**379−0.033380(0.006381**382YEARS23830.001384(0.001)385**3860.001387(0.001)388**3890.001390(0.001)391**3920.001393(0.001)394**3950.001396(0.001)397**398SIZE3990.001400(0.001)401**4020.001403(0.001)404**4050.001406(0.001)407**4080.001409(0.001)410**4110.001412(0.001)413**414BRAND_D4150.122416(0.029)417**4180.116419(0.024)420**4210.111422(0.024)423**4240.112425(0.024)426**4270.113428(0.027)429**430SCHOOL4310.782432(0.215)433**4340.550435(0.202)436**4370.513438(0.202)439*4400.520441(0.203)442*4430.697444(0.205)445SUBWAY446−0.001447(0.001)448**449−0.001450(0.001)451*452−0.001453(0.001)454*455−0.001456(0.001)457*458−0.001459(0.001)460**461GRDP4620.005463(0.001)464**4650.002466(0.001)467**4680.002469(0.001)470**4710.002472(0.001)473**4740.005475(0.001)476**477SO2478−54.235479(12.619)480**481−36.103482(12.490)483**484−36.375485(12.493)486**487−35.100488(12.514)489**490−52.734491(12.636492**493NO2494−41.089495(6.793)496**497−8.081498(8.254)499−4.468500(8.157)501−4.761502(8.338)503−42.995504(6.658)505**506O3507−4.916508(4.919)509−1.486510(5.683)511−1.301512(5.706)513−0.173514(5.784)515−3.981516(4.808)517*518PM10519−0.014520(0.003)521**522−0.012523(0.003)524**525−0.012526(0.003)527**528−0.010529(0.004)530**531−0.013532(0.003)533**534CO5350.473536(0.212)5370.191538(0.275)5390.152540(0.275)5410.142542(0.278)5430.413544(0.218)545Adj.R2/Sq. Corr.5460.7865470.8545480.7375490.7345500.786551AIC552−55.414553−197.433554−42.790555Breusch-Pagan55667.751**55759.679**558LM-LAG559(Robust-LAG)560165.338561(52.525)562**563**564LM-ERR565(Robust-ERR)566436.450567(323.637)568**569**570* : 5% significant level ; ** : 1% significant level ; ( ) : Standard error571572573===== PAGE 9 (score 142, numeric-paren 109, table-words 4, var-words 3) =====574575171576Effect of Air Quality Improvements on Apartment Prices in Seoul577Table 5. Sensitivity Analysis : Distance Effect578Distance579Weight Matrix=1.7 km580Weight Matrix=10 km581Weight Matrix=20 km582Model583Spatial Error Model584Spatial Error Model585Spatial Lag Model586Estimation587ML588GM589(2-step)590ML591GM592(2-step)593ML594IV595(2SLS)596ρ5970.174598(0.290)599−2.285600(0.399)601**602λ6030.834604(0.024)605**6060.631607−608**6090.972610(0.024)611**6121.031613−614**615Constant6169.222617(0.404) 618**6199.221620(0.382)621**62210.147623(0.476)*62410.965625(0.413)626**6278.153628(3.100)629**63034.214631(4.241)632**633M26340.010635(0.001)636**6370.011638(0.001)639**6400.011641(0.001)642**6430.011644(0.001)645**6460.011647(0.001)648**6490.011650(0.001)651**652HEAT_D653−0.039654(0.022)655**656−0.063657(0.023)658**659−0.171660(0.026)661**662−0.173663(0.026)664**665−0.162666(0.041)667**668−0.178669(0.028)670**671CORRI_D6720.098673(0.029)674**6750.100676(0.031)677**6780.152679(0.037)680**6810.161682(0.037)683**6840.167685(0.041)686**6870.178688(0.040)689**690BATH691−0.034692(0.023)6930.024694(0.026)6950.003696(0.032)6970.005698(0.032)699−0.036700(0.034)701−0.018702(0.033)703YEARS704−0.024705(0.004)706**707−0.026708(0.005)709**710−0.032711(0.006)712**713−0.033714(0.006)715**716−0.033717(0.006)718**719−0.034720(0.006)721**722YEARS27230.001724(0.001)725**7260.001727(0.001)728**7290.001730(0.001)731**7320.001733(0.001)734**7350.001736(0.001)737**7380.001739(0.001)740**741SIZE7420.001743(0.001)744**7450.001746(0.001)747**7480.001749(0.001)750**7510.001752(0.001)753**7540.001755(0.001)756**7570.001758(0.001)759**760BRAND_D7610.101762(0.021)763**7640.098765(0.022)766**7670.129768(0.026)769**7700.124771(0.026)772**7730.114774(0.029)775**7760.101777(0.028)778**779SCHOOL7800.527781(0.244)782*7830.580784(0.240)785*7860.822787(0.190)788**7890.758790(0.186)791**7920.681793(0.213)794**7950.917796(0.211)797**798SUBWAY7990.001800(0.001)801−0.001802(0.001)803*804−0.001805(0.001)806**807−0.001808(0.001)809**810−0.001811(0.001)812**813−0.001814(0.001)815**816GRDP8170.003818(0.001)819**8200.004821(0.001)822**8230.004824(0.001)825**8260.003827(0.001)828**8290.005830(0.001)831**8320.005833(0.001)834**835SO28366.352837(13.978)838−15.283839(13.802)840−51.402841(11.155)842**843−55.429844(11.014)845**846−53.455847(12.472)848**849−43.373850(12.306)851**852NO2853−8.522854(9.304)855−21.450856(8.510)857*858−24.520859(6.394)860**861−22.118862(6.338)863**864−44.275865(6.963)866**867−26.219868(7.190)869**870O3871−3.978872(6.379)8731.040874(5.813)875−4.310876(4.749)877−4.758878(4.731)879−4.596880(4.951)8814.066882(4.958)883PM10884−0.006885(0.003)886−0.007887(0.003)888*889−0.021890(0.003)891**892−0.022893(0.003)894**895−0.013896(0.003)897**898−0.011899(0.003)900**901CO9020.245903(0.294)9040.089905(0.271)9060.144907(0.217)9080.178909(0.217)9100.454911(0.213)912*913−0.114914(0.224)915Adj.R2/Sq. Corr.9160.8939170.7659180.8229190.7689200.7909210.806922AIC923−300.176924−111.892925−63.135926Breusch-Pagan92751.830**92873.349**92973.127**930* : 5% significant level ; ** : 1% significant level ; ( ) : Standard error931932933===== PAGE 10 (score 9, numeric-paren 0, table-words 3, var-words 3) =====934935Kichan Nam, Ji-Wan Son and Brian H.S. Kim936172937 938ln939dy940d941y942dx943dy944b945= 946(7)947 dx948dy949y950b951=952953(8)954 955y y956x957x958h959b960b961=962=963964(9)965The elasticity of spatial-lag model can be estimated as follows4 :966 ln PART967I968W969x970v9711972t973b974=975-976+977-978^979h9806981@982983(10)984 985ln986dx987d988PART989I990W991dx992dx9931994t995b996=997-998-999^1000h100161002@10031004(11)1005 1006dx1007d PART1008PART1009I1010W10111101211013$1014t1015b1016=1017-1018-1019^1020h102161022@10231024(12)1025 1026dx x1027d PART1028PART1029I1030W1031x103211033h1034t1035b1036=1037=1038-1039-1040^1041^1042e1043h1044h o104561046@10471048(13)1049 1050I1051x105211053h1054t1055b1056=1057-1058-105961060@10611062(14)1063The elasticity of spatial-error model can be estimated as follows :1064 ln PART1065X1066W1067e1068b1069m1070=1071+1072+1073^1074h10751076(15)1077 1078ln1079dx1080d1081PART1082dx1083dx b1084=1085^1086h10871088(16)1089 1090ln1091dx1092d1093PART1094PART1095$1096b1097=1098^1099^1100h1101h1102(17)1103 1104X1105h1106b1107=11081109(18)1110Spatial dependence generally affects the independent variables in SAR. Considering the effect of spa-1111tial dependence is important, but this paper uses Equation (14) for SAR and Equation (18) for SEM to 1112estimate elasticity.1113The value of air quality reflects the marginal willingness to pay (MWTP) of the improvements in 1114air pollution concentration. MWTP is calculated with the estimated elasticity of each air pollution 1115source (Table 6) and the improvement level based on air quality standards of SMA.1116PM10 is one of the most highly concentrated pollutants among criteria air pollutants (Table 11173). The concentration level of PM10 needs to decrease by 11.084 μg/m3 (18.15%) to meet Seoul’s air 1118quality standards. Therefore, MWTP is estimated with the use of the elasticity of PM10 of each model 1119in Tables 4 and 5 with the following cases : (1) reduction in PM10 concentration by 10% and 18.15%, (2) 11206.5% discount rate, and (3) apartment lifespan of 30 years5. Table 7 shows the estimated average 11214 The functions of I1122W1123i1124I1125i11261112711128t1129t1130-1131=1132-1133-1134^1135c1136h1137m is used for the conversion from Equation (13) to Equation (14).11385 Since this study evaluates the value of environmental improvements on housing price, it is reasonable to use 1139social discount rates that are generally used at the national level. The Korea Development Institute (KDI), 1140which is the main economic research institution in Korea, used the social discount rate of 6.5% for the years of 11412004 to 2008. Also, Seoul city government’s current regulation to permit renewal and/or reconstruction for the 1142apartment after 20 to 40 years of lifespan depending on the year it was built. Therefore, the median of 30 years 1143is used for lifespan of the apartments.114411451146===== PAGE 11 (score 11, numeric-paren 0, table-words 3, var-words 3) =====114711481731149Effect of Air Quality Improvements on Apartment Prices in Seoul1150monthly and annual MWTP6. The estimated average MWTP for a 10% reduction in PM10 concentra-1151tion is about 233,800 won (US$187.0) to 303,800 won (US$243.0) per month. This range of values is 1152relatively high compared with those found in previous studies that use OLS, but it remains reasonable 1153in consideration of the spatial effects of air pollutants.11545. Conclusions and Implications1155Growing urban environment, public health, and housing problems have made people more sensi-1156tive with issues on air pollution. People’s choice of housing location and price could be based on the 1157concentration of criteria air pollutants. This study focuses on the evaluation of criteria air pollutant 11586 The capital recovery factor, which is defined below, is used in the estimation of MWTP :1159 CRF1160P1161R1162r1163r1164r1165111661116711168N1169N1170=1171=1172+1173-1174+1175^1176^1177h1178h1179 where r is the discount rate, N is the life span period, P is the present value, and R is the equivalent price per 1180year.1181Table 6. Elasticity Estimation of PM101182Mean1183Coefficient1184elasticity1185OLS118661.0841187−0.0141188−0.8551189W=5 km1190ML1191−0.0121192−0.7331193SEM GM1194(2 Step)1195−0.0121196−0.7331197SEM GM1198(iterated)1199−0.0101200−0.6111201OLS Robust1202(White variance)1203−0.0131204−0.7941205W=1.7 km1206SEM GM1207(2 step)1208−0.0071209−0.4281210W=10 km1211SEM GM1212(2 step)1213−0.0221214−1.3441215W=20 km1216IV (2SLS)1217−0.0111218−0.2051219Table 7. Marginal Willingness to Pay1220(Unit : 1,000 won)1221Present Value1222Ave. per year1223Ave. per month122410%122518.15%122610%122718.15%122810%122918.15%1230W=5 km1231SEM GM1232(2 step)123343,948.3123479,766.212353,365.512366,108.31237280.51238509.01239SEM GM1240(iterated)124136,633.6124266,490.012432,805.312445,091.61245233.81246424.31247OLS Robust124847,605.7124986,404.312503,645.512516,616.61252303.81253551.4125412551256===== PAGE 12 (score 9, numeric-paren 0, table-words 0, var-words 9) =====12571258Kichan Nam, Ji-Wan Son and Brian H.S. Kim12591741260concentration and how this factor affects the price of apartments in SMA. The marginal value of WTP 1261for changes in criteria air pollutants is estimated with spatial hedonic price model.1262The most highly concentrated criteria pollutant in Seoul is PM10. A 10% decrease in PM10 con-1263centration could be worth about 233,800 won (US$187.0) to 303,800 won (US$243.0) per month. This 1264range of values is based on estimated MWTP value for 30 years of apartment life span. For a healthy 1265level of PM10 concentration (reduction of 18.15%), the expected MWTP should be about 424,300 won 1266(US$339.4) to 551,400 won (US$441.1) per month7.1267Previous studies assert that if the concentration of sulfur dioxide (SO2) is improved by 10%, the 1268marginal value of the benefit is about 36,000 won (US$32.7) (Choe and Shim, [4]) and 87,000 won 1269(US$79.1) (Lee, [8]) per month. A direct comparison of results is difficult because of the different 1270methods and periods used by previous studies. The normal lifespan of apartments in Korea before 1271these are considered for renovation is 30 years. Previous studies used the average apartment price of 1272200 million (US$181,818) to 300 million (US$272,727) won. However, the price of apartments signifi-1273cantly increased since 2004, especially in Seoul, and interest toward the environment has 1274grown. Therefore, the estimated MWTP in this study is robust and meaningful.1275Using spatial econometrics and spatial interpolation method, this study contributed to the litera-1276ture not only by promoting the interests of SMA residents but also by addressing some of the problems 1277in previous models and data. However, econometric problems of inconsistent and biased estimators 1278when spatial dependence is present that, in future studies, a more flexible approach is needed with 1279functional form as well as spatial hedonic model. Also, the effects of criteria pollutants other than 1280PM10 are needed to directly compare with the results in other studies.1281References1282［ 1 ］ Anselin, L. and Le Gallo, J., “Interpolation of Air Quality Measures in Hedonic House Price Models : Spatial 1283Aspects,” Spatial Economic Analysis, vol. 1(1), 2006, pp. 31-52.1284［ 2 ］ Brasington, D. and Hite, D., “Demand for Environmental Quality : A Spatial Hedonic Analysis,” Regional Sci-1285ence and Urban Economics, Elsevier, vol. 35(1), 2005, pp. 57-82.1286［ 3 ］ Chay, K. and Greenstone, M., “Does Air Quality Matter ? Evidence from the Housing Market,” Journal of 1287Political Economy, University of Chicago Press, vol. 113(2), 2005, pp. 376-424.1288［ 4 ］ Choe, J. and Shim, S.H., “An Effect of Air Quality on the Apartment Prices in Seoul : Using Hedonic Price 1289Method,” Environmental and Resource Economics Review, vol. 11(2), 2002, pp. 261-279. (in Korean)1290［ 5 ］ Griliches, Z., “Hedonic Price Indexes Revisited : Some Notes on the State of the Art, Proceedings of the 1291Business and Economic Statistics Section,” American Statistical Association, 1967, 1967, pp. 324-332.1292［ 6 ］ Griliches, Z., “Hedonic Price Indexes of Automobiles : An Econometric Analysis of Quality Change,” in Zvi 1293Griliches (ed.), Price Indexes and Quality Change, Cambridge : Cambridge University Press, 1971.1294［ 7 ］ Kim, C.W., Phipps, T., and Anselin, L., “Measuring the Benefits of Air Quality Improvement : A Spatial 1295Hedonic Approach,” Journal of Environmental Economics and Management, vol. 45, 2003, pp. 24-39.1296［ 8 ］ Lee, J.S., “Estimation of Implicit Marginal Price and Benefit of SO2 Density Decrease in Seoul Apartment 12977 Previous studies assert that if the concentration of sulfur dioxide (SO2) is improved by 10%, the marginal value 1298of the benefit is about 36,000 won (US$32.7) (Choe and Shim, [4]) and 87,000 won (US$79.1) (Lee, [8]) per 1299month. A direct comparison of results is difficult because of the different methods and periods used by previous 1300studies. The normal lifespan of apartments in Korea before these are considered for renovation is 30 1301years. Previous studies used the average apartment price of 200 million (US$181,818) to 300 million 1302(US$272,727) won. However, the price of apartments significantly increased since 2004, especially in Seoul, 1303and interest toward the environment has grown. Therefore, the estimated MWTP in this study is robust and 1304meaningful.1305