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

Zisheng Song, Mats Wilhelmsson and Agnieszka Zalejska-Jonsson

International Journal of Housing Markets and Analysis, 2025, vol. 18, issue 7, 87-110

Abstract: PurposeThe purpose of this paper is to investigate the spillover effects of neighbouring rents on housing prices.Design methodology approachTreating 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.FindingsThe 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 implicationsThe 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 implicationsPolicies that optimize and professionalize rental supply can mitigate housing market volatility, moderate house price inflation and enhance market efficiency in transitional housing systems.Originality valueThe originality lies in regarding neighbourhood housing rents as a locational attribute of housing prices and investigating the neighbouring rental spillovers of housing rents.

Keywords: Rent or buy; Housing markets; Housing prices; Spillover effects; Rent; The hedonic model (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijhmap:ijhma-05-2025-0123

DOI: 10.1108/IJHMA-05-2025-0123

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