Estimating the extent to which green swan events disrupt housing markets: Evidence from China

Shocks from climate change and transitioning to a low-carbon economy can have a green swan effect on economies. To assess the extent to which green swan events may disrupt housing markets in the future, this study examines how the prices of carbon trading pilot sites in four Chinese cities (Beijing, Shanghai, Tianjin, and Chongqing) affect housing prices in these cities and whether the green swan effect increases with a rise in policy risks. This paper first performs simulations to determine the extreme risk of housing returns (value at risk) and whether this risk is affected by the exogenous shock of carbon returns. Then, this study examines the correlation between carbon prices and housing prices from the perspectives of returns and volatility. In terms of risk transmission effects, all four real estate markets are affected by carbon price risk spillovers. It verifies that China’s real estate market may be negatively impacted by “green swans” when carbon prices experience significant fluctuations. The findings provide investors with a means to evaluate whether the housing market is susceptible to a green swan effect, and also underscore the need for authorities to evaluate the impact of carbon reduction policies on the housing market.