State Misallocation and Housing Prices: Theory and Evidence from China

This paper examines the equilibrium price effects of the privatization of housing assets that were previously owned and allocated by the state. I develop a theoretical framework that shows that privatization can have ambiguous effects on prices in the private market, and that the degree of misalloca...

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Bibliographic Details
Published in:The American economic review 2011-08, Vol.101 (5), p.2081-2107
Main Author: Wang, Shing-Yi
Format: Article
Language:English
Subjects:
Affordable housing
China
Coefficients
Consumption
Economic reform
Economic theory
Employers
Equilibrium
Equilibrium prices
Homes
Households
Housing
Housing demand
Housing needs
Housing prices
Housing subsidies
International
Logarithms
Market prices
Marketing
Price level
Private sector
Privatization
Real estate
Real estate companies
Real estate market
Rent control
State employees
Studies
Subsidized housing
Transition economies
Wage & price controls
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Summary:This paper examines the equilibrium price effects of the privatization of housing assets that were previously owned and allocated by the state. I develop a theoretical framework that shows that privatization can have ambiguous effects on prices in the private market, and that the degree of misallocation of the assets prior to privatization determines the subsequent price effects. I test the predictions of the model using a large-scale housing reform in China. The results suggest that the removal of price distortions allowed households to increase their consumption of housing and led to an increase in equilibrium housing prices.
ISSN:0002-8282
1944-7981
DOI:10.1257/aer.101.5.2081