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Abstract Air pollution is widely believed to cause healthy risks and influence nations' economic dimensions. This paper investigates the impact of air pollution on housing prices in China's 286 prefectural-level cities during 2005–2013. To address the endogeneity problem of PM 2.5 concentrations in our regression, we propose an instrument variable strategy based on ventilation coefficient. The estimation results suggest that a 10% increase in PM 2.5 concentrations causes a 2.4% reduction in local housing prices. Air pollution also hinders the progress of urbanization, limits cities' human capital formation and changes people's expectations of housing prices that we interpret as three potential mechanisms behind our main findings. [ABSTRACT FROM AUTHOR]

By applying panel data obtained for 285 prefecture-level cities in China from 2005 to 2019, in this paper, we employ the spatial Durbin model to estimate the spatial spillover effects of air pollution on housing prices among neighboring cities. The empirical estimations show that, first, housing prices and PM2.5 concentrations present a significantly positive spatial autocorrelation, implying that significant spatial agglomeration exists among the studied cities. Then, regarding the spatial heterogeneity of air pollution's capitalization effects, we found that air pollution shows a significantly positive relationship with local house prices in large cities and a negative relationship with local house prices in small and medium-sized cities. Additionally, air pollution exerts significantly negative impacts on housing prices in western China but shows no significance in the eastern or central regions. In addition, air pollution exhibits negative capitalization effects on housing values in northern and southern China, and the magnitude of the estimated coefficient in the southern region is smaller than that in the northern region. These findings are robust to an alternating spatial matrix and the explanatory indicators. Our empirical results can help the government develop recommendations for environmental governance and household location choice in China. • Demonstrating the relationship between air pollution and housing prices using panel data of 285 Chinese cities. • Exploring the spatiotemporal evolution of housing prices in Chinese cities. • Employing the spatial Durbin model to analyze the spatial spillover effects of air pollution on housing values. • Exploring the heterogeneity of air pollution's capitalization impacts regarding urban sizes and different regions. [ABSTRACT FROM AUTHOR]