Rent Seekers vs. Producers in Cities: Contagious Housing Bubbles Force Housing Price Diffusion on Urban Overdevelopment

33 Pages Posted: 6 Jan 2013

See all articles by Hsiao-Jung Teng

Hsiao-Jung Teng

National Chengchi University (NCCU), Department of Land Economics

Chin-Oh Chang

National Chengchi University (NCCU) - Department of Land Economics

Chia-Ming Yu

Independent

Ming-Chi Chen

National Sun Yat-sen University - Department of Finance

Date Written: January 5, 2013

Abstract

In recent years, housing booms have caused ghost town phenomena in many cities such as Dublin, Madrid, Dubai, etc. This paper derives a theoretical model to illustrate how activities of producers and rent seekers affect housing price booms in city centers and surrounding areas due to overdevelopment in urban growth. Because activities of producers and rent seekers are untraceable, we propose an innovative definition that housing fundamentals and bubbles are proxies for activities of producers and rent seekers respectively. We use data on the Taipei metropolitan area from 1973 to 2012 for empirical analysis. Our results show that housing price changes diffuse from the city center to the suburbs and that changes in the city center housing bubble cause price movements in the suburbs. The housing market acts as a reward system for rent seeking activities, thereby influencing investment incentives. Interestingly, the housing bubble size in the suburbs is larger than that in the city center, verifying the prediction in theory that activities of rent seekers contribute to the bubble contagion. Finally, the current vacancy rate in the suburbs is higher than that in the city center, suggesting that bubble contagion leads to overdevelopment, which then results in the appearance of so-called ghost areas.

Keywords: Housing Price, Housing Bubble, Contagion, Rent Seeking, Urban Growth

JEL Classification: J24, R21, R32, P25

Suggested Citation

Teng, Hsiao-Jung and Chang, Chin-Oh and Yu, Chia-Ming and Chen, Ming-Chi, Rent Seekers vs. Producers in Cities: Contagious Housing Bubbles Force Housing Price Diffusion on Urban Overdevelopment (January 5, 2013). Available at SSRN: https://ssrn.com/abstract=2196798 or http://dx.doi.org/10.2139/ssrn.2196798

Hsiao-Jung Teng

National Chengchi University (NCCU), Department of Land Economics ( email )

Taipei City
Taiwan

Chin-Oh Chang (Contact Author)

National Chengchi University (NCCU) - Department of Land Economics ( email )

Taipei 11623
Taiwan
+886 2 29387478 (Phone)
+886 2 29390251 (Fax)

Chia-Ming Yu

Independent

Ming-Chi Chen

National Sun Yat-sen University - Department of Finance ( email )

No.70, Lianhai Rd., Gushan District,
Kaohsiung City
Taiwan

HOME PAGE: http://cm.nsysu.edu.tw/~mcchen/index.html

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