Siqi Zheng

Samuel Tak Lee Professor of Real Estate Development and Entrepreneurship

The Social Cost of Air Pollution

The Social Cost of Air Pollution
sustainable urbanization

Professor of Urban and Real Estate Sustainability Siqi Zheng and her Sustainable Urbanization Lab are quantifying how air pollution and other local environmental hazards, such as high temperatures, negatively affect subjective well-being.

By: Eric Brown

If climate change were not such an existential threat, we would probably be talking a lot more about the related curse of air pollution. In 2018, airborne pollutants were responsible for the deaths of 4.5 million people and led to 4 million new cases of child asthma and 2 million preterm births, according to the Centre for Research on Energy and Clean Air. Due to work absences and other impacts that year, air pollution reduced economic output by $2.9 trillion.

Siqi Zheng, Professor of Urban and Real Estate Sustainability at MIT’s Department of Urban Studies and Planning, has another item to add to the list: Air pollution is making us unhappy. Zheng’s Sustainable Urbanization Lab recently completed a study that used social media data in China to quantify how air pollution and other local environmental hazards such as high temperatures lower subjective well-being.

“Most healthy people do not immediately get sick from air pollution,” says Zheng. “However, they are influenced by air pollution in other ways, such as losing utility and happiness.”

The air pollution study is one of many research projects on urbanization that Zheng is pursuing. Others include the impact of environmental amenities on real estate and how environmental hazards such as pollution, climate risks, and COVID affect the value of consumer cities. Zheng has also explored place-based policy evaluations for industrial parks and transportation infrastructure. Recently, her lab launched a study on sustainable real estate, including incentives for financing green and healthy buildings (see farther below).

Most healthy people do not immediately get sick from air pollution. However, they are influenced by air pollution in other ways, such as losing utility and happiness.

Smog meets social networking

One of the biggest challenges in the air pollution study was deciding how to quantify sentiment. “It is not that easy to measure happiness,” says Zheng. “It takes a lot of time to do a traditional survey in which you ask people if they are happy on a particular day, and it limits you to a smaller sample.”

Zheng instead focused more on aggregate social media data, which in the Chinese study was largely based on Weibo data. “We use natural language processing techniques to extract the sentiment information from the posts and apply a 0-100 happiness score for every post,” explains Zheng. “We then aggregate those sentiment scores by granular levels like location and a measure of time such as day, month, or quarter. By linking the sentiment index with environmental threats like pollution and extreme temperature, we can see how they influence happiness.”

Zheng’s study focuses on “consumer cities” like Shanghai and Shenzhen. Like Boston, San Francisco, or New York, these cities have largely transitioned from manufacturing to services and knowledge work. Many, however, continue to suffer from high air pollution caused in large part by their growing popularity.

“People move to consumer cities not only to work but to enjoy the social life,” says Zheng. “In consumer cities, the workers tend to be younger, and they place a high value on going out to restaurants, bars, coffee shops, shopping areas and parks for social interaction.” Zheng adds that such interactions help generate new ideas, which in turn help spur economic growth.

“Our study found that on heavily polluted or very hot and cold days, people stay at home more,” says Zheng. Her research uses Yelp data to quantify how air pollution and extreme temperatures reduce trips to restaurants, shopping areas, and other venues. “The economic impact is not too bad because people can now do online shopping and food delivery. Yet, they lose the opportunity to socialize.”

All this may sound familiar to city dwellers who have been forced by the pandemic to stay inside, a practice that has also been shown to result in increased unhappiness and psychological problems. Air pollution differs in that it is more localized, with varying rates of intensity depending on the city. Skilled workers in high demand can often seek greener pastures.

“When there is longer term pollution, many knowledge workers seek out jobs in cleaner consumer cities,” says Zheng. “As a result, heavily polluted cities are beginning to see a brain drain. I show my work to policy workers and tell them that if they want to attract people, they need to clean up the air.”

Lure of the city continues

Zheng, who joined MIT in 2017 following a professorship at Tsinghua University in China, has begun to expand her research from China to a more global perspective. Although China faces a larger air pollution problem than most countries, she believes that the results of her happiness study should apply globally. The same goes for the trend of young knowledge workers flocking to consumer cities.

One area of difference has been the impact of the pandemic on real estate. In parts of the US and some other countries with high rates of COVID-19, many urban knowledge workers fled to the suburbs or exurbs.

“With the pandemic there has been a trend toward working at home, sometimes outside the city,” says Zheng, who is also the faculty director for MIT’s Center for Real Estate. “As we move forward, going to city centers will still be seen as valuable, but people may only commute a few days a week.”

The pandemic has increased the popularity of houses with more rooms that can be designated as home offices, says Zheng. “A couple may need two home office spaces, which increases the demand for larger houses. Those are usually found farther from the city center where the unit price will be lower.”

The real estate market has also changed due to “the ongoing structural shock of e-commerce replacing brick and mortar stores, which was accelerated in the pandemic,” says Zheng. Yet, Zheng believes the need for socialization will slow the rush to e-commerce. “Standard products and services will increasingly go online, but offline shopping will remain important for experience-oriented services that provide social interaction. Most customers still want to try new fashions before buying. Shopping malls and other commercial areas need to add more social and experience-based businesses.”

Despite these structural changes, the flight to the suburbs appears to have slowed, and it primarily applied to older knowledge workers with children, suggests Zheng. “After 2010, but before COVID, studies have shown that younger knowledge workers, especially those without kids, were moving in greater numbers to vibrant city centers. I expect this trend to continue.”

Standard products and services will increasingly go online, but offline shopping will remain important for experience-oriented services that provide social interaction.

Incentivizing green real estate

Zheng’s latest research is linked to a new core course she is teaching called “Sustainable Real Estate: Economics, and Business.” Zheng separates the topic into three levels: the asset level for building green and healthy buildings; the city level for developing sustainable cities with low carbon output and high quality of life; and the portfolio level covering portfolios of buildings and the associated investment risk.

“The key question is how to align the social value and the economic value,” says Zheng. “The social value is clear: You consume less energy and reduce carbon to improve the planet and society. But how do you incentivize real estate developers and investors to build green and healthy buildings?”

Green building projects need to align the needs of what Zheng calls the triple P: planet, people, and profit. The people phase includes the demand for healthy, well-ventilated buildings, a trend that has been accelerated by the pandemic. One example of a misalignment between planet and people would be “reducing office size to reduce energy consumption only to result in dirtier indoor air and more sickness,” explains Zheng.

There are also regional differences to consider. Zheng notes that building codes that require more open windows will not work in heavily polluted cities. “The pandemic is a short-term problem while pollution is longer term,” she adds.

The most vexing question concerns profit. “To what extent will end users pay higher prices or rents for green and healthy buildings?” asks Zheng. “That price premium will be capitalized into the market value, which will be crucial to incentivize the supply side. Developing and owning non-conventional buildings incurs incremental costs that span design, construction, and operations. We need an incremental benefit to justify that cost, and to make a business case. Our early findings suggest that if you can show consumers the benefits of sustainable buildings, they will be willing to pay more.”

The bigger challenge is with the existing buildings. “New construction accounts for only a small portion of our building stock, so it is very important to retrofit older buildings to make them more energy efficient,” says Zheng. “That will require policy incentives. Otherwise, owners will not have a strong incentive to retrofit.”

One promising model for other cities can be found in New York City’s upcoming Local Law 97, a very stringent climate regulation that will soon be enforced in the building sector. “New York is starting with the big office buildings and is imposing fines on buildings of 25,000 square feet or larger if they do not meet stringent caps on energy consumption,” says Zheng “The owners only have 3-5 years to take actions before they need to pay a fine. Many owners may find out that it doesn’t make sense to pay the very expensive fine, so we expect that many will choose to retrofit.”

Whether looking at local problems such as air pollution or global problems such as climate change, Zheng attempts to establish a systematic framework to improve understanding. “You need to look at these difficult urbanization and real estate problems from many perspectives,” says Zheng. “These include economic mechanisms, technological advances, business models, and investment and financing strategies.”

Siqi Zheng
Siqi Zheng Professor of Urban and Real Estate Sustainability Department of Urban Studies and Planning