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Abstract Climate change is a hot topic in the world. While academic researchers generally focus on the causes of global warming such as the green house gases generated by human activities and the associated climatic problem on human and biological life, few researches have been carried out to study the impact of climatic changes on property transactions. The author studies the monthly property transactions data from Hong Kongs Statistical Department and monthly data of temperature, humidity etc from Hong Kong Observatory in 1997-2006. Results indicate that there is a negative and significant relationship between property prices and temperature. This provides important information on the prediction of the property transactions for the future residential property market in Hong Kong.
Key words: climatic changes, property transactions, Hong Kong, hedonic pricing
1. Introduction
Discussion on the weather and its possible effect upon human beings has been a popular topic ever since ancient times. Hippocartes and Aristotle wrote about the relationship between environment and people (Corsini, 1994). They believed that climate has an important effect on human activities. Such effects may be due to the influence on the openness of the architectures, the inability to travel because of. heavy rainfall, and construction of individuals within an area (Corsini, 1994). Indeed, weather conditions do affect humans activity, e.g. people prefer stay in an air-conditioned room if it is too hot. Outdoor activity will be reduced if there is rain all the time and so on.
In view of all these, many researches were carried out on the relationship between climate and various human behavior e.g. climate and crime (Anderson, 1987, Anderson and Anderson, 1984, Field, 1992, Lab and Hirschel, 1988, Rotton and Frey, 1985) and tourism (Stefan Gossling and Hall, 2006, Gossling and Hall, 2006, Maddison, 2001). Climate also affects animals and plants. Academic researchers have studied the relationship between natural hazards (Pfister and Brazdil, 1999), habitat (Tanaji and Vinod, 2007, Anthony and Brian, 2007, Jed, 2006, Hirvela et al., 2006, Peltola et al., 1999, Field, 1995, Dodd and Rafii, 2002, Bawa and Markham, 1995, Malevsky-Malevich et al., 2008) and argriculture (Pfister and Brazdil, 1999, Villers, 2006). Nevertheless, little attention has been drawn to climate as a significant input to property markets.
Besides, while the majority of the researchers only focus on the factors which affect the Property 11
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VALUES (or prices), e.g. environmental amenities (Frankel, 1991, Theebe, 2004, Wilhelmsson, 2000, Fernando, 2002), few research has been done on the factors which affect the volume of residential property transactions. Their research focus was on macroeconomic fluctuations (Ortalo-Magna and Rady, 2004) and mental health facilities (Dear, 1977) on the residential property transactions, motivation of the sellers (Springer, 2004) etc.
To conclude, previous real estate researchers mainly focus their research on the factors which affect the values of the property prices/ values and the impact of climatic change on property transactions is unknown. The objective of the paper is therefore to find out the impact of climatic change on property transactions. This paper uses monthly property transactions data from the Land Registry and monthly weather data from 1997-2006 to estimate the impact of climate on residential property transactions in Great Hong Kong.
The impact of climate on house prices was first studied by Roback (1982). She finds that residential property price differentials do exist across cities. Increase in one millimetre of rainfall per year decrease in house prices from 4 pounds to 14 pounds square metre. Home purchasers who live regions with higher average rainfall are willing to pay less for an extra millimetre of rain. Research done by Maddison & Bigano (2003) and Rehdanz (2006) confirm the results of Roback.
Residential property buyers, however, are willing to pay a considerable amount more for a one Degree Celsius increase in average temperature. Maddison (2001) estimates an increase in price of 298.28 pounds per dwelling for a one Degree Celsius increase in annual mean temperature and 0.51 pounds per dwelling for one millimetre reduction in annual rainfall in United Kingdom in 1994. Global warming might thus benefit British households (Rehdanz, 2006).
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Up to 1950, natural factors which include solar radiation variations and dust produced by volcano were the predominated factor of temperature change. Human-induced factors have become the central leading factor of climate change. Disentangling natural from anthropogenic causes is never an exact science. Wigley (1999) finds that there is an approximately a 0.5 degree Celsius increase in global mean temperature over the 19502000 period (Griffin, 2003).
Report of IPCC Fourth Assessment Report which was issued in 2007 shows that most of the apparent increase in global temperature since the mid-20th century is due to rise in the level of greenhouse gases which traps infrared radiation. Human activities increase greenhouse gas levels by introducing new source which includes chlorofluorocarbons, methane, carbon dioxide, ozone and nitrous oxide. Increase in methane and nitrogen oxide are largely due to agriculture activities while increase in carbon dioxide is primarily due to use of fossil fuel and change in use of land. All these greenhouse gases have increased significantly as a result of human activities. One Minute increase in temperature will cause changes in cloud cover and wind patterns which might affect rainfall in return (Le Treut et. al. 2007) Global average surface temperature goes up by 0.6In the last century (Le Treut et. al. 2007). Warming trend over the past 50 years is nearly twice for the last 100 years (Le Treut et. al. 2007).
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Figure 1 Rainfall in Hong Kong from 1947 to 2006 (Hong Kong Observatory, 2008).
Annual mean temperature data demonstrates that there was a rise of 0.12C per ten years from 1885 to 2006 on average (Hong Kong Royal Observatory, 2007) as shown in figure 2. Figure 3 illustrates that the pace of temperature increase in Hong Kong is faster within 1989-2006 than 1947-2006.
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Figure 2 Temperature in Hong Kong from 1885 to 2006 (Hong Kong Observatory, 2008)
Figure 3 Trend in temperature from 1947 to 2006 and 1989 to 2006 (Hong Kong Observatory, 2008).
Generally speaking, there is a decrease in wind speed in Hong Kong as recorded in Kings park (see figure 4). It might be due to the fact that there are more and more skyscrapers in Hong Kong which 15
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There is a slight upward trend in pressure in Hong Kong (see figure 5). However, there is no significant trend of humidity record in Hong Kong Observatory (see figure 6).
MeanPressure(hPa)
1013.5 1013 1012.5 1012 1011.5 1011 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Figure 5 Graph shows an upward trend in pressure in Hong Kong from 1997 to 2006 (Hong Kong Statistics Department, 1997-2006).
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MeanHumidity(%)
81 80 79 78 77 76 75 MeanHumidity(%) Linear(Mean Humidity(%))
Figure 6 Trend of average humidity from 1997 to 2006 in Hong Kong (Hong Kong Statistics Department, 1997-2006).
5. Data
Monthly property transactions data (1997-2006) is obtained from the official website of the Land Registry in Hong Kong (Land Registry, 2007). Data of temperature, humidity, cloud etc (1997-2006) is obtained from the website of the Hong Kong Statistic. The following 6 figures illustrate the mean 1) pressure (figure 7) 2) dew point temperature (figure 8), 3) Relative humidity (figure 9), 4) Rainfall (figure 10), 5) windpeed (figure 11), 6 volume of residential property transactions from 1997 to 2006 per year (figure 12). Generally speaking, there was a v-shaped trend in mean pressure in Hong Kong from 1997 to 2003 and decreased steadily afterwards (see figure 7). The mean dew point temperature had risen to the peak in 1998 and 1999 but reached the lowest point in 2004, the lowest ever recorded in this study period (see figure 8). The range of relative humidity was quite small; it only oscillated around 77-80.5 % (figure 9). Figure 10 shows a steady increase in rainfall from 1998 to 2001 and fall from 2001 onwards. It then, however, recorded a more than one-third increase in rainfall in the year 2005. Due to the construction of tall buildings which create wall-effect, wind speed in Hong Kong decreased substantially in 2001-2007. The wind speed from 1997 to 2000 was nearly double of year 2001 onwards (figure 11). With regard to housing transactions, although it was crazily high in 1997, it has sharply reduced after the Asian Economic crisis.
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Figure 7 Mean Pressure in Hong Kong from 1997 to 2006 (Hong Kong Statistics Department, 1997-2006)
Figure 8 Mean Dew point temperature in Hong Kong from 1997 to 2006 (Hong Kong Statistics Department, 1997-2006)
Figure 9 Mean Relative humidity for each year in Hong Kong (1997 to 2006) (Hong Kong Statistics Department, 1997-2006)
Figure 10 Mean Rainfall for each year in Hong Kong (1997 to 2006) (Hong Kong Statistics Department, 1997-2006)
Figure 11 Average wind speed (m/s) for each year (1997 to 2006) (Hong Kong Statistics Department, 1997-2006)
Figure 12 Average volume of residential property transactions for each year (1997 to 2006) (Hong Kong Statistics Department, 1997-2006) 18
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Dependent Variable: LOG(RESID) Method: Least Squares Variable C LOG(HUMIDITY) LOG(WIND SPEED) LOG(PRESSURE) LOG(DEWTEMP) LOG(RAIN) D1997 D1998 D1999 D2000 D2001 D2002 D2003 D2004 D2005 Coefficient 913.6555 -2.872000 -1.873735 -127.9619 -2.181470 -0.747570 -0.653868 -1.026933 -0.999514 -1.253640 -0.963066 -1.076932 -0.917128 -1.375992 -0.964060 Std. Error 507.0585 1.165527 0.879842 73.10243 0.765595 0.082450 0.314232 0.329691 0.327412 0.323083 0.285252 0.300370 0.286091 0.332013 0.283635 t-Statistic 1.801874 -2.464122 -2.129625 -1.750446 -2.849379 -9.066950 -2.080843 -3.114838 -3.052772 -3.880239 -3.376194 -3.585349 -3.205727 -4.144388 -3.398942 Prob. 0.0804 0.0189 0.0405 0.0891 0.0074 0.0000 0.0451 0.0037 0.0044 0.0005 0.0019 0.0010 0.0029 0.0002 0.0017
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Factor
Results of regression
Current
Trend
in
Prediction
on
HK
Hong Kong (HK) Humidity Temperature Wind Speed Rainfall Pressure -ve and sig -ve and sig -ve and sig -ve and sig -ve but insig N/A Upward Downward Upward Upward
After all, the data collected is restricted within the past decade monthly property transactions and weather data in Hong Kong. To increase the generalization power of the theory, the author hopes to incorporate data from different parts of the world in a longer period of time.
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