Outsiders, Insiders and Interventions in the Housing Market

30 Pages Posted: 22 Aug 2019

See all articles by Xiaokuai Shao

Xiaokuai Shao

Tsinghua University - School of Economics & Management

Alexander White

Tsinghua University - School of Economics & Management

Date Written: December 10, 2018

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

JEL Classification: D41, D45, H21, H30

Suggested Citation

Shao, Xiaokuai and White, Alexander, Outsiders, Insiders and Interventions in the Housing Market (December 10, 2018). Available at SSRN: https://ssrn.com/abstract=3439712 or http://dx.doi.org/10.2139/ssrn.3439712

Xiaokuai Shao

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

Alexander White (Contact Author)

Tsinghua University - School of Economics & Management ( email )

Mailbox A-44
Weilun Building
Beijing, 100084
China

HOME PAGE: http://alex-white.net

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