Simulating the Barriers of Transaction Costs to Public Rental Housing Exits: The Case of Wuhan, China

Jintao Li, Xin Ning, Jun Sun and Xiaoqian Xiong
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Jintao Li: School of Civil Engineering, Architecture and Environment, Hubei University of Technology, No.28, Nanli Road, Hong-shan District, Wuchang, Wuhan 430068, China
Xin Ning: School of Investment & Construction Management, Dongbei University of Finance & Economics, Dalian 116025, China
Jun Sun: School of Civil Engineering and Mechanics, Huazhong University of Science and Technology, Luoyu Road 1037, Hong-shan District, Wuchang, Wuhan 430074, China
Xiaoqian Xiong: School of Civil Engineering and Mechanics, Huazhong University of Science and Technology, Luoyu Road 1037, Hong-shan District, Wuchang, Wuhan 430074, China

Sustainability, 2018, vol. 10, issue 5, 1-13

Abstract: The purpose of this paper is to explore and simulate the barriers of transaction costs to public rental housing (PRH) exits in China. The two-period model of household consumption utility, with the constraints of transaction costs, is employed to conduct our analysis. The overall results show that if transaction costs go beyond the tenants’ ability to afford them, the tenants will continue to live in the current PRH units, resulting in an obstruction of PRH exits. When the rent ratio in the two periods is higher than 1 and continues to rise, a higher proportion of transaction costs for household consumption contributes to a greater impeding effect, so the barriers’ effect with regards to concurrent changes in rent and income is similar to that of changes only in rent. We observe a close relationship between the acceptable maximum transaction costs and the variety of housing rents. If the tenants cannot afford the maximum transaction cost or housing rent in the private market, they will stop searching for a more advantageous housing and will prefer living in the current PRH units. Moreover, the proportion of maximum acceptable transaction costs does not vary with the changes in the expected household income; income growth only increases the absolute value of transaction costs, not the relative one. Therefore, the government should not only provide housing search services to help tenants leave the public rental sector, but should also adjust the supply of affordable housing for households with housing stress.

Keywords: PRH exits; transaction costs; barriers; two-period model; Wuhan (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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