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The Impact of Measurement and Pricing Cost on Rental Transaction Prices – Evidence from the Institutional Rental Housing Market in Beijing

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  • Tianwei Yang

    (The University of Hong Kong)

  • Derek Huo

    (The University of Hong Kong)

  • Lennon H. T. Choy

    (The University of Hong Kong)

  • K. W. Chau

    (The University of Hong Kong)

Abstract

Transaction cost is high in the housing rental market due to heterogeneity of the housing units and associated quality of services provided by the landlord. The two main types of transaction cost are search and information cost. Previous studies often do not differentiate their impact on rental prices. We show that the former has a positive while the latter has a negative impact on rental prices. This paper focus on the latter to explain the emergence of Institutional Rental Market in China. We conjecture that the Institutional Rental Market in China is an institutional arrangement that emerge to reduce information cost and thus rent dissipation. In this market, the real estate agents also act as intermediate landlords. They capture part of the dissipated rent by reducing information cost with their established brand name and standardized renovation to the housing units they rented from individual owners before subletting them out to tenants. The empirical results from a unique dataset from Beijing are consistent with our conjecture.

Suggested Citation

  • Tianwei Yang & Derek Huo & Lennon H. T. Choy & K. W. Chau, 2023. "The Impact of Measurement and Pricing Cost on Rental Transaction Prices – Evidence from the Institutional Rental Housing Market in Beijing," The Journal of Real Estate Finance and Economics, Springer, vol. 66(1), pages 119-140, January.
    • Handle: RePEc:kap:jrefec:v:66:y:2023:i:1:d:10.1007_s11146-022-09899-9
    DOI: 10.1007/s11146-022-09899-9
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    Cited by:

    1. Fan, Ying & Fu, Yuqi & Yang, Zan & Chen, Ming, 2024. "Search frictions in rental markets: Evidence from urban China," China Economic Review, Elsevier, vol. 83(C).
    2. Fan, Ying & Fu, Yuqi & Yang, Zan & Chen, Ming, 2023. "Search Frictions in Rental Markets: Evidence from Urban China," Working Paper Series 23/11, Royal Institute of Technology, Department of Real Estate and Construction Management & Banking and Finance.

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