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State Misallocation and Housing Prices: Theory and Evidence from China

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  • Shing-Yi Wang

Abstract

This paper examines the equilibrium price effects of the privatization of housing assets that were previously owned and allocated by the state. I develop a theoretical framework that shows that privatization can have ambiguous effects on prices in the private market, and tha the degree of misallocation of the assets prior to privatization determines the subsequent price effects. I test the predictions of the model using a large-scale housing reform in China. The results suggest that the removal of price distortions allowed households to increase their consumption of housing and led to an increase in equilibrium housing prices. (JEL L33, O18, P25, R31, R38)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.5.2081
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 101 (2011)
Issue (Month): 5 (August)
Pages: 2081-2107

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Handle: RePEc:aea:aecrev:v:101:y:2011:i:5:p:2081-2107

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  1. Stein, Jeremy C, 1995. "Prices and Trading Volume in the Housing Market: A Model with Down-Payment Effects," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 379-406, May.
  2. Sing, Tien-Foo & Tsai, I-Chun & Chen, Ming-Chi, 2006. "Price dynamics in public and private housing markets in Singapore," Journal of Housing Economics, Elsevier, vol. 15(4), pages 305-320, December.
  3. Edward L. Glaeser & Erzo F. P. Luttmer, 2003. "The Misallocation of Housing Under Rent Control," American Economic Review, American Economic Association, vol. 93(4), pages 1027-1046, September.
  4. Svarer, Michael & Rosholm, Michael & Munch, Jakob Roland, 2005. "Rent control and unemployment duration," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 2165-2181, December.
  5. Deo Bardhan, Ashok & Datta, Rajarshi & Edelstein, Robert H. & Sau Kim, Lum, 2003. "A tale of two sectors: Upward mobility and the private housing market in Singapore," Journal of Housing Economics, Elsevier, vol. 12(2), pages 83-105, June.
  6. Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-47, February.
  7. Hansen, Julia L. & Formby, John P. & Smith, W. James, 1998. "Estimating the Income Elasticity of Demand for Housing: A Comparison of Traditional and Lorenz-Concentration Curve Methodologies," Journal of Housing Economics, Elsevier, vol. 7(4), pages 328-342, December.
  8. Richard Arnott, 1995. "Time for Revisionism on Rent Control?," Journal of Economic Perspectives, American Economic Association, vol. 9(1), pages 99-120, Winter.
  9. Moon, Choon-Geol & Stotsky, Janet G, 1993. "The Effect of Rent Control on Housing Quality Change: A Longitudinal Analysis," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 1114-48, December.
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Cited by:
  1. Jonathan Halket & Matteo Pignatti, 2012. "Housing tenure choices with private information," Economics Discussion Papers 717, University of Essex, Department of Economics.
  2. Wong, Maisy, 2013. "Estimating the Distortionary Effects of Ethnic Quotas in Singapore Using Housing Transactions," MPRA Paper 51217, University Library of Munich, Germany.
  3. Feng Hu, 2013. "Homeownership and Subjective Wellbeing in Urban China: Does Owning a House Make You Happier?," Social Indicators Research, Springer, vol. 110(3), pages 951-971, February.
  4. Mark Rosenzweig & Junsen Zhang, 2014. "Co-residence, Life-Cycle Savings and Inter- Generational Support in Urban China," Working Papers 1039, Economic Growth Center, Yale University.
  5. Jing Wu & Yongheng Deng & Hongyu Liu, 2014. "House Price Index Construction in the Nascent Housing Market: The Case of China," The Journal of Real Estate Finance and Economics, Springer, vol. 48(3), pages 522-545, April.
  6. Shing-Yi Wang, 2013. "Property Rights and Intra-Household Bargaining," NBER Working Papers 19427, National Bureau of Economic Research, Inc.
  7. Yanbin Chen & Fangxing Li & Zhesheng Qiu, 2013. "Housing and Saving with Finance Imperfection," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 207-248, May.
  8. Ge, Suqin & Yang, Dennis T., 2012. "Changes in China's Wage Structure," IZA Discussion Papers 6492, Institute for the Study of Labor (IZA).

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