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The Built & Human Environment Review, Volume 2, Special Issue 1, 2009

The impact of climate change on residential transactions in Hong Kong


Li, Rita Yi Man H0339637@hkusua.hku.hk / ritarec@hotmail.com Department of Real Estate and Construction, The University of Hong Kong

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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The Built & Human Environment Review, Volume 2, Special Issue 1, 2009

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.

2. Climate and housing market


Based on economic theory, man are selfish (Smith, 2000), individuals choose to live in a place where they can maximize their net benefits subject to the constraints they face. Living in climatically different places means consuming different types of goods--climate. Since people are attracted to regions which offer good combinations of environmental amenities, these regions should have both compensating house price differentials (Rehdanz, 2006).

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).

3. Global climate change


The United Nations Framework Convention in Geneva (1996) states that climate change refers to a change in climate which is due to human activity that changes the symphony of the global atmosphere in addition to natural climate variability observed over similar time periods. The Intergovernmental Panel on Climate Change, however, points out that climate change refers to any change in climate over time, whether it is due to the results of natural variability or human activity (Hong Kong Royal Observatory, 2007). Rainfall increases considerably in northern Europe, northern and central Asia and eastern parts of North and South America but decreased in southern Africa, parts of southern Asia from 1900 to 2005 (Pachauri, 2007). Global greenhouse gas releases by human activities have increased by 70 % from 12

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The Built & Human Environment Review, Volume 2, Special Issue 1, 2009

1970 to 2004 (IPCC Working Group III, 2007).

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).

4. Hong Kongs climate and change


The Hong Kong Observatory (known as The Royal Observatory of Hong Kong before 1997) measures and records Hong Kongs weather every day. Climate change is mainly caused by localized urbanization in Hong Kong and global warming as a result of greenhouse effect.

4.1 Hong Kongs climate


Hong Kong climate has a sub-tropical climate. Winter is rather cold in Hong Kong. It is not uncommon for temperatures to drop below 10 Degree Celsius in urban areas in December, January and February. The lowest temperature recorded is 0 Degree Celsius, although frost and sub-zero temperatures occur sometimes on high level ground and in some places in the New Territories. Usually, there are cold and dry northerly winds blows from North. Spring in Hong Kong is humid. It is common to have fog in March and April. Drivers and navigators might have trouble because of visibility reduction. It is humid and hot with occasional thunderstorms and heavy rain, predominantly during the mornings from May to August. Temperature in the afternoon is generally over 31 Degree Celsius (Hong Kong Observatory, 2008). Autumn in Hong Kong is cool and dry and it starts from September to November. Other weather phenomena which affect Hong Kong include winter monsoon winds, thunderstorms which are associated with squalls and tropical cyclones. Hailstorms and waterspouts seldom occur, snow and tornadoes is also hard to be found in Hong Kong. Hong Kong, however, is likely to be affected by tropical cyclones from July to September. There are about 31 tropical cyclones in the western China Seas or North Pacific every year on average and about half of them reach the strength of typhoon (Hong Kong Royal Observatory 2008).

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The Built & Human Environment Review, Volume 2, Special Issue 1, 2009

4.2 Hong Kongs climate change


The average annual rainfall in Hong Kong varies from approximately 1300 mm to more than 3000mm (Hong Kong Observatory 2007). Majority of rainy days occurs between May and September. There are only about six days in a month with rainfalls and 23.4mm rainfalls on average. August is the wettest month when there is only about four days out of seven when rain occurs and the mean monthly rainfall is 391.4mm. Generally speaking, rainfall in Hong Kong is on a growing trend (see figure 1). Rainfall is higher in urban areas such as Central and Causeway Bay than high grounds, New Territories and offshore islands, e.g. Lantau Island. (Hong Kong Royal Observatory, 2007). Leung et al. (2004) also reported that the yearly mean cloud amount bas been escalating at a rate of 1.8% per ten years from 1961 to 2002. One of the potential causes for the increase in amount of rain bearing cloud over Hong Kong could be the increase in the condensation nuclei in the sky which favours the formation of clouds. Such phenomenon is known to be associated with 1) urbanization (Lam, 2006), 2) increase in suspended particulates concentration due to urban activities such as building and construction and 3) the higher temperature in urban areas enhance convection activities which favours the formation and development of clouds (Hong Kong Observatory 2008).

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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The Built & Human Environment Review, Volume 2, Special Issue 1, 2009

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

The Built & Human Environment Review, Volume 2, Special Issue 1, 2009

block the wind blows.

Figure 4 Average Wind Speed in Hong Kong from 1968 to 2004

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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The Built & Human Environment Review, Volume 2, Special Issue 1, 2009

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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The Built & Human Environment Review, Volume 2, Special Issue 1, 2009

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

The Built & Human Environment Review, Volume 2, Special Issue 1, 2009

6. Methodology and Results interpretation


After collecting all the data, a time series regression is run by statistical software EView 3 (1994-1998) econometric software which is design for econometrician to perform both the crosssectional and time series analysis. Since the range of weather data change within 10 years is small, the author chooses semi-log to study the relationship between residential property transactions and the five factors of weather: humidity, Wind Speed, pressure, dew point temperature and rainfall. Another reason for this comes from the idea that simpler model usually generates more accurate results (Li et. al. 2007). The results indicate that there is a negative and significant relationship between volume of residential properties transactions and humidity, Wind Speed, dewpoint temperature and the amount of rainfall. There is also a negative but insignificant relationship between pressure and residential property transactions. The adjusted R-square is 0.838688 is large which indicates that the model has a desirable goodness of fit and validity.

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

Table 1: Relationships between property transactions and elements of climate

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7. Discussions and Conclusions


Starting from the 19th century, industrial revolution has brought great improvement to our lives. Yet, it also induced inevitable climatic change. Results from the multiple regressions indicate that there is a negative and significant relationship between volume of residential properties transactions and humidity, wind speed, dew point temperature and the amount of rainfall. It is natural that human beings stay at home to enjoy the air conditioning during hot days, so as potential home purchasers. Similarly, the floor and walls are wet in humid days; decrease the comfortability of human bodies so as peoples interests in purchasing housing units in Hong Kong. The negative and significant relationship between rainfall and property transactions can be explained by the inconvenience or inability to travel (Corsini, 1994). Interesting observations is that people buy more residential units during windy days. As wind in Hong Kong is quite gentle, slight increase in wind speed can decrease humidity in Hong Kong which in turns increases human bodys comfortability. This study strengthens the argument proposed by Li and Fu (2008) that good weather is one of the factors activating peoples home purchasing behavior. As previous research indicated that Hong Kongs climate is getting hotter and there is an upward trend on rainfall. It is expected that a combinations of hotter and rain days in Hong Kong will lead to less property transactions. Nevertheless, increase in average wind speed within a year will lead to an increase in property transactions. Summary of the findings can be found in table 1.

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

housing transactions N/A Decrease Increase Decrease N/A

Table 2: Summary of the results of the study

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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