Investigating the spillover effects of neighbouring housing rents on housing prices: evidence from Beijing, China

Abstract

Purpose – The purpose of this paper is to investigate the spillover effects of neighbouring rents on housing prices. Design methodology approach – Treating neighbouring rents as a locational attribute, the authors estimate a price–rent hedonic model using owner-occupied and rental housing transactions from Beijing (2016–2018). In addition, the empirical model shows substantial robustness using instrumental variable-two-stage least squares estimation, Oster’s selection-on-unobservables test and placebo tests. Findings – The authors find that a 1% increase in one-quarter-lagged neighbouring rents raises sale prices by about 0.35% in OLS estimation, while the spillover is around 0.23% in instrumental variable (IV) estimation. Furthermore, rental spillovers are heterogeneous – stronger for mid-sized and newer housing units, outside school-district zones and in Chaoyang, Haidian and Shijingshan, while weaker in new-town areas. In addition, exploiting a late-2017 tightening of rental supply, the authors further show that the spillover intensifies thereafter. Practical implications – The findings highlight the interconnectedness of the rental and ownership markets and underscore the need for urban housing policy to consider the signals of the rental market. Social implications – Policies that optimize and professionalize rental supply can mitigate housing market volatility, moderate house price inflation and enhance market efficiency in transitional housing systems. Originality value – The originality lies in regarding neighbourhood housing rents as a locational attribute of housing prices and investigating the neighbouring rental spillovers of housing rents.