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China's Real Estate Markets

Paper Session

Saturday, Jan. 6, 2024 10:15 AM - 12:15 PM (CST)

Marriott Rivercenter, Conference Room 10
Hosted By: American Real Estate and Urban Economics Association
  • Chair: Tingyu Zhou, Florida State University

Under Control? Price Ceiling, Queuing, and Misallocation: Evidence from the Housing Market in China

Qiyao Zhou
,
University of Maryland

Abstract

This paper develops a model to study the general equilibrium effect of price control policies. The government in Shanghai has imposed a price ceiling on new houses since 2017 to regulate the housing market. The proposed framework extends the existing literature by allowing consumers to be forward-looking. Consumers can choose to wait, pay the waiting cost, and re-enter the market if houses are not allocated to them currently due to excess demand. I assemble a new dataset that contains information about the sales, characteristics of new and existing houses, and the households' participation records of new house lotteries. The structural estimation results suggest that the welfare loss associated with the price ceiling is around 10.5 billion US dollars from 2018 to 2020. The waiting cost account for 37% of the total welfare loss. Comparing these estimates with those from a model with myopic consumers highlights several important biases that arise when forward-looking consumer considerations are ignored. I also use the model to study the implications of alternative policies, including increasing the new housing supply and imposing an additional price ceiling on existing houses.

Government–Directed Urban Growth, Firm Entry, and Industrial Land Prices in Chinese Cities

Jan Brueckner
,
University of California-Irvine
Wenhua Liu
,
Southwestern University of Finance and Economics
Wei Xiao
,
Southwestern University of Finance and Economics
Junfu Zhang
,
Clark University

Abstract

We examine the effect of a large-scale administrative reorganization in China, where counties are annexed into cities to accommodate urban growth. We present a simple model to illustrate how this annexation may affect firm entry decisions and in turn land market outcomes. Using nationwide data on land-lease transactions, we find that annexation raises industrial land prices in the annexed counties by 7 percent but does not reduce land prices in neighboring counties and central cities. We show that the annexed counties experienced increases in firm entry and investment, offering a plausible mechanism for the effect on industrial land prices.

Anti-Corruption Campaign and the Resurgence of the SOEs in China: Evidence from the Real Estate Sector

Hanming Fang
,
University of Pennsylvania
Jing Wu
,
Tsinghua University
Rongjie Zhang
,
Tsinghua University
Li-An Zhou
,
Peking University

Abstract

We advance a novel hypothesis that China’s recent anti-corruption campaign may have contributed to the resurgence of the state-owned enterprises (SOEs) in China as an unintended consequence. We explore the nexus between the anti-corruption campaign and the SOE resurgence by presenting supporting evidence from the Chinese real estate sector, which is notorious for pervasive rent-seeking and corruption. We use a unique data set of land parcel transactions merged with firm-level registration information and a difference-in-differences empirical design to show that, relative to the industrial land parcels which serve as the control, the fraction of residential land parcels purchased by SOEs increased significantly relative to that purchased by private developers after the anti-corruption campaign. This finding is robust to a set of alternative specifications. We interpret the findings through the lens of a model where we show, since selling land to private developers carries the stereotype that the city official may have received bribes, even the “clean” local officials will become more willing to award land to SOEs despite the presence of more efficient competing private developers. We find evidence consistent with the model predictions.

Social Status and Credit Misallocation

Brent Ambrose
,
Pennsylvania State University
Sumit Agarwal
,
National University of Singapore
Yuting Huang
,
Capital University of Economics and Business
Weida Kuang
,
Renmin University of China

Abstract

Using a proprietary loan-level data set from the Housing Provident Fund Center in a Chinese municipality, we find that government officials can borrow 3.4% more (almost 20,000 RMB) and take an additional 1.7% LTV ratio between 2005 and 2015. We interpret such preferential treatment as the result of the inherent high social status of being a government official. We find that the amount premium increases along with other indicators of a person’s social status and substantially declines after the corruption crackdown. Alternative explanations like lending to government officials for their better credit risk profiles can be ruled out. We provide suggestive evidence on the crowding-out effect, whereby government officials obtain more low-cost loans by tightening the restrictions placed on their counterparts, and such discrepant practices in mortgage underwriting may have imposed a heightened inequality in social and economic welfare distribution.

Discussant(s)
Yang Shi
,
University of Melbourne
Zoe Yang
,
Chinese University of Hong Kong
Dayin Zhang
,
University of Wisconsin-Madison
Anthony Lee Zhang
,
University of Chicago
JEL Classifications
  • R0 - General
  • G2 - Financial Institutions and Services