How do Developers Price New Housing in a Highly Oligopolistic City?

Wong SK, Li L & Monkkonen P (2019) How do developers price new housing in a highly oligopolistic city? International Real Estate Review, 22(3), 307-332.

30 Pages Posted: 9 Mar 2021

See all articles by Siu Kei Wong

Siu Kei Wong

University of Hong Kong

Ling Li

University of Cambridge - Department of Land Economy

Paavo Monkkonen

University of California, Los Angeles (UCLA)

Date Written: October 30, 2019

Abstract

The profiteering developer is a common figure in debates over housing policy. Governments increasingly use developer profits to justify policies like inclusionary housing. Yet, we actually understand little about the competitiveness of housing development. One unresolved question is whether developers use market power to profit when selling new units, especially in highly concentrated markets. We use the case of Hong Kong, where the five largest developers build almost two-thirds of new housing units, to address this question. Using a repeat-sales approach, we find that new condominiums sell at a discount, not a premium. We attribute this lack of market power to the resalable feature of durable goods – the discount is bigger when more re-sellers are located nearby – as well as the need for liquidation – the discount is bigger when developers have to sell more units simultaneously. Our results suggest that the first-hand market, even in a highly concentrated market, is competitive. They add to a growing body of research on the role of new housing in affordability, and invite further study of competitiveness in different kinds of housing markets.

Keywords: Developers; monopoly; housing prices

JEL Classification: R1, D2

Suggested Citation

Wong, Siu Kei and Li, Ling and Monkkonen, Paavo, How do Developers Price New Housing in a Highly Oligopolistic City? (October 30, 2019). Wong SK, Li L & Monkkonen P (2019) How do developers price new housing in a highly oligopolistic city? International Real Estate Review, 22(3), 307-332., Available at SSRN: https://ssrn.com/abstract=3275713

Siu Kei Wong (Contact Author)

University of Hong Kong ( email )

Pokfulam Road
Hong Kong, HK
China

Ling Li

University of Cambridge - Department of Land Economy ( email )

19 Silver Street
Cambridge, CB3 9EP
United Kingdom

Paavo Monkkonen

University of California, Los Angeles (UCLA) ( email )

405 Hilgard Avenue
Box 951361
Los Angeles, CA 90095
United States

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