How Much Are Amenities Worth? An Empirical Study on Urban Land and Housing Price Differentials across Chinese Cities

Round 1

Reviewer 1 Report

please see my report

Comments for author File: Comments.pdf

Author Response

Responses to the Reviewers (LAND #1766721)

 

Dear Editor,

Thank you for sending us the review report. We have responded to each comment. We have also edited the paper. Please see below for our responses.

Sincerely,

Jiang Zhou

1. Co-authors

 

Responses to Reviewer 1

• Comment 1: There are several areas the paper can further improve. 1. It is unclear why the paper focuses on the land and housing prices in 2020. Why not other years? In particular, one could use a panel data approach and tease out the effect of amenities. For instance, Huang et al. (2015) focus on 35 Chinese cities and can separate the contributions of income, bank loans, and amenities. Through a two-stage approach, Huang et al. even consider the issue of endogenous amenities, such as medical care (proxies by the number of hospital beds). The authors should relate to that paper and explain why a cross-sectional approach is used instead.

Responses: Thanks for the suggestion. We employed the most recent and available data from 2020. In this study, we employed structural equations so that housing and land rents are functions of the endogenous wage premium in the area. In addition, because W is a RHS endogenous variable, we performed two stage least squares (2SLS) estimations. We then imputed the implicit prices of various amenities. We absolutely plan to perform a panel data approach in our next study once compilation of data from earlier years will be completed.

 

• Comment 2: Deng et al. (2020) also study China's land and housing price differentials. Garriga et al. (2020) argue that internal migration within China influences house prices. The authors should relate to these papers and highlight their contributions.

Responses: Thanks for the suggestion. We have added these references and highlighted their contributions.

 

• Comment 3: Carlino et al. (2019) also study the issue of amenities. The authors should relate to that paper and highlight their contributions.

Responses: Thanks for the suggestion. We have added this reference and highlighted their contributions. We added: It is necessary to note that other amenities are important too. For example, Carlino and Saiz (2019) demonstrate the importance of leisure amenities for urban development. They validate the number of tourist trips and the number of crowdsourced picturesque locations as measures of consumer revealed preferences for local lifestyle amenities. Their results show that “beautiful cities” attracted highly educated individuals and experienced faster housing price appreciation. We propose to include local lifestyle amenities in our future studies.

 

• Comment 4: Section 2 of the manuscript discusses the theoretical framework. It seems that it is more like a review, and the authors should shorten it or even put that in the appendix.

Responses: Thanks for the suggestion. We apologize for the confusion. We rewrote and extended the original Roback model so Section 2 would still stay in the main text. We revised the section to reflect that the original model was extended.

 

• Comment 5: Recent theoretical contributions in urban economics include Hanushek et al. (2007, 2011, 2015). In particular, Hanushek et al. (2015) show that land-use regulation matters. In the case of China, some cities may preserve specific historical sites and hence restrict the real estate development in certain areas. Such a policy would have at least two effects. First, it decreases the total land supply and lifts the land and housing prices. Second, it increases the city's amenities, further raising the city's housing prices. The authors should relate to those papers

Responses: This is a great suggestion! We have added and discussed these references. We added: Hanushek et al. (2007, 2011, and 2015) demonstrate that land-use regulation matters in real estate market. In the case of China, some cities may preserve specific historical sites and hence restrict the real estate development in certain areas. Such a policy would have at least two effects. First, it decreases the total land supply and lifts the land and housing prices. Second, it increases the city's amenities, further raising the city's housing prices. We leave this issue for future exploration.

 

• Comment 6: Section 3. Indeed, the theory does not inform us of the exact specification. On the other hand, many authors contribute to discussing the "optimal" specification. After surveying extensive literature, Malpezzi (2003) recommends a log-linear specification. Employing the microdata of Hong Kong, Leung et al. (2014) show that the log-linear specification can provide a consistently high adjusted ? The authors should relate to those papers and reexamine their results using a log-linear specification as a robustness check.

Responses: Thanks for the great suggestion. We have related to the papers and also reexamined our results using a log-linear specification as a robust check. In our analysis, the linear form returned slightly better R2. We rewrote the paragraph as follows: The theory has been silent on the specification of estimating equations. Many authors contribute to discussing the "optimal" specification. Different functional forms are tested to find the best fit (e.g., Blomquist et al. 1988). Malpezzi (2003) recommends a log-linear specification. Employing the microdata of Hong Kong, Leung et al. (2014) show that the log-linear specification can provide a consistently high adjusted ?2. Both Malpezzi (2003) and Leung et al. (2014)’s datasets are large and are used for hedonic price estimations. In our analysis, we tested both the linear and the log-linear specifications, and the linear form returned slightly better R2. Therefore, in this exploratory analysis we choose to adopt the linear form.

 

 

Reviewer 2 Report

This paper appears to present very little new information. Relying on very old theories and references, it utilizes numerous seemingly endless equations to state the obvious, such as that huge amounts of air pollution do not enhance value. I suggest that the authors examine more recent literature of the value of amenities. I don't see any value  to this paper in its current state. 

Author Response

Responses to Reviewer 2

 

• Comment: This paper appears to present very little new information. Relying on very old theories and references, it utilizes numerous seemingly endless equations to state the obvious, such as that huge amounts of air pollution do not enhance value. I suggest that the authors examine more recent literature of the value of amenities. I don't see any value to this paper in its current state. 

 

Response: Thanks for the suggestion. We have updated the literature on amenities. We have also clarified what this paper contributes to the literature: This study extends Roback’s model to investigate the effects of natural and locally-produced amenities on urban land and housing prices in prefecture and higher level cities across China. We estimate a set of structural equations using the 2SLS method given the segregated residential and industrial land markets in Chinese cities. We also impute the implicit prices of various amenities.

 

Author Response File: Author Response.docx

Round 2

Reviewer 1 Report

(nil)

Reviewer 2 Report

No more comments. Revision is OK.