Agglomeration, Housing Affordability, and New Firm Formation: The Role of Subway Network in Beijing

42 Pages Posted: 3 Dec 2019 Last revised: 21 Jan 2020

See all articles by Rui Du

Rui Du

Department of Economics, Oklahoma State University

Siqi Zheng

Massachusetts Institute of Technology (MIT) - Center for Real Estate; Massachusetts Institute of Technology (MIT) - Department of Urban Studies & Planning; Hang Lung Center for Real Estate, Tsinghua University

Date Written: January 18, 2020

Abstract

The housing affordability issue in mega-cities creates a significant job-housing mismatch and undermines productive new business creation. This paper focuses on Beijing and investigates whether improved accessibility via the subway network helps new firms benefit from agglomeration economies and, at the same time, provides workers with easy access the low-cost rental housing. Using commercial rental housing transaction records and dynamic bilateral subway travel time from 2010-2015, we build the measure of the accessibility to business clusters and low-cost rental housing through the subway network at a high spatial resolution. Taking advantage of exogenous shocks from the network reconfiguration due to the rapid subway expansion in Beijing, we employ a matched difference-in-differences estimation in multiple periods to identify the causal elasticity estimate of the new firm formation with respect to the accessibility to business clusters and low-cost rental housing. We demonstrate that the subway network is more conducive to firm establishments. The effects are more salient for firms in skill intensive sectors. New skill-intensive firms increase by 0.44% given a 1% increase in the accessibility to business clusters. The elasticity of new skill-intensive firms of with respect to the accessibility to low-cost rental housing is about 0.74. Our findings justify the use of transit-oriented development to spur on new skill-intensive businesses. We point to the importance of an efficient public transit system capable of serving the dispersed workforce and improving the efficiency of new firm location choice.

Keywords: new firm formation, subway, agglomeration, low-cost rental housing

JEL Classification: R11, R12, L26

Suggested Citation

Du, Rui and Zheng, Siqi, Agglomeration, Housing Affordability, and New Firm Formation: The Role of Subway Network in Beijing (January 18, 2020). Journal of Housing Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3489225 or http://dx.doi.org/10.2139/ssrn.3489225

Rui Du (Contact Author)

Department of Economics, Oklahoma State University ( email )

347 Business Building
Oklahoma State University
Stillwater, OK OK 74078-0555
United States

Siqi Zheng

Massachusetts Institute of Technology (MIT) - Center for Real Estate ( email )

Building 9-323
Cambridge, MA 02139
United States

HOME PAGE: http://https://siqizheng.mit.edu/

Massachusetts Institute of Technology (MIT) - Department of Urban Studies & Planning ( email )

77 Massachusetts Avenue
Cambridge, MA 02139
United States

Hang Lung Center for Real Estate, Tsinghua University ( email )

HeShanHeng Building
Beijing, 100084
China

HOME PAGE: http://https://siqizheng.mit.edu/

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