Search, Information Friction, and the Housing Market

Abstract

This study examines the impact of information friction on housing market outcomes. Leveraging an administrative housing resale transactions dataset in Beijing, we employ a boundary discontinuity design and difference-in-differences model to explore the consequences of prohibiting school-district-quality labels in the online listing information. Our results show that the prohibition leads to a 2.44% reduction in transaction prices and a 19.82% increase in the seller's time on the market for the houses corresponding to the key primary schools compared with the other houses. The extended time on the market is primarily attributed to the heightened challenges that potential buyers face in finding their ideal dwellings. Moreover, the changes in buyers' search behavior and sellers' time on the market prompt the sellers to lower the listing prices to attract potential buyers and lead to lower transaction prices. Overall, the empirical evidence highlights the importance of information friction during the housing search process.

Keywords: Information Friction, Search Friction, Key Primary School, Housing Market

JEL Classification: D83, I21, R31, R38