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Outsiders, insiders and interventions in the housing market

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  • Shao, Xiaokuai
  • White, Alexander

Abstract

In the wake of China’s “great migration,” many cities, including Beijing and Shanghai, restrict some residents from owning housing, forcing them to rent. We build a model studying motivations for and effects of ownership-restricting policies. When some agents are prohibited from purchasing housing, competitive equilibrium further punishes renters, failing to attain a “second-best” that maximizes welfare subject to the policy’s intended constraint. We then consider real estate taxation, a hotly debated topic in China, currently undergoing reform. We show that positive taxes on housing transactions can help mitigate the inefficiency caused by restricted ownership, but only by introducing a new distortion. Meanwhile, subsidizing rental transactions could, in theory, restore the second-best, but only by diverting public funds away from other uses.

Suggested Citation

  • Shao, Xiaokuai & White, Alexander, 2021. "Outsiders, insiders and interventions in the housing market," Journal of Comparative Economics, Elsevier, vol. 49(1), pages 110-134.
    • Handle: RePEc:eee:jcecon:v:49:y:2021:i:1:p:110-134
    DOI: 10.1016/j.jce.2020.05.004
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    More about this item

    Keywords

    Ownership Restriction; Sale versus Rental; Taxation; Chinese Housing; Hukou; Second-Best;
    All these keywords.

    JEL classification:

    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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