Working Paper: NBER ID: w27230
Authors: Yongheng Deng; Yang Tang; Ping Wang; Jing Wu
Abstract: Housing and land prices in China have experienced dramatic hikes over the past decade or two. Moreover, housing and land prices have also become more dispersed across Chinese cities. This paper intends to explore how housing and land market frictions may affect not only the aggregate but also the spatial distribution of housing and land prices and hence the extent of spatial misallocation. We first document the spatial variations of housing and land market frictions. In particular, larger tier-1 cities receive less housing and land subsidies, compared to tier-2 and tier-3 cities, whereas land frictions have been mitigated over time. We then embed both types of market frictions into a dynamic competitive spatial equilibrium framework featured with endogenous rural-urban migration. The calibrated model can reasonably mimic the price hikes in the data. Our counterfactual analysis reveals that, in a frictionless economy, the levels of housing and land prices would both be higher; while the housing price hike would slow down, the land price would grow more rapidly. Moreover, the housing price would not be slow down unless housing frictions can be largely mitigated.
Keywords: housing markets; land markets; spatial misallocation; China; market frictions
JEL Codes: D15; E20; R20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| housing and land market frictions (R31) | aggregate and spatial distribution of housing and land prices (R31) |
| frictionless economy (D26) | housing and land prices (R31) |
| local government institutions (H70) | market frictions (D43) |
| market frictions (D43) | price dispersion (L11) |
| structural transformation process (O14) | housing and land price growth (R31) |
| housing frictions (R21) | housing price growth (R31) |
| land frictions (Q15) | land price growth (R31) |
| removing housing frictions (R21) | housing price inequality (R31) |
| land frictions (Q15) | land price dispersion (R31) |