Outsiders, insiders and interventions in the housing market

Xiaokuai Shao and Alexander White ()

Journal of Comparative Economics, 2021, vol. 49, issue 1, 110-134

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.

Keywords: Ownership Restriction; Sale versus Rental; Taxation; Chinese Housing; Hukou; Second-Best (search for similar items in EconPapers)
JEL-codes: D41 D45 H21 H30 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jcecon:v:49:y:2021:i:1:p:110-134

DOI: 10.1016/j.jce.2020.05.004

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