Modeling Institutional Constraints on Housing Behavior in China: Zhilin Liu School of Public Policy & Management Tsinghua University, Beijing, China December 2007 Conceptual and Methodological Challenges International Conference on China’s Urban Land and Housing in the 21st Century, Hong Kong

The Conceptual Challenge  Actors – Institutions  Giddens, The agency-structure problem  The Institutional Turn in Social Sciences  Institutions as “ the rules of the game in a society. ” (North,1990)  Defining the opportunity sets of market players  Preferences endogenously determined  How to incorporate the institutional dimension into the study of housing behavior?  The context of an emerging market economy

An New Institutional Framework  Understanding individual behavior from an institutional perspective Individuals Preference and utility Institutions Rules of the game Figure 1 A simplified framework of new institutional economics on interactions of actors and institutions

Context: Housing Marketization  Declining influence of public sector investment in residential development Figure 2 Completed investment in residential development and the share of investment by SOEs by year, Beijing, Source: Beijing Statistical Bureau, various years

Context: Housing Marketization  Rising Homeownership  72%, 2000 National Census  Improved housing condition SQ.M (National Statistical Bureau of China, 2006)

Macro VS Micro Approaches  Housing Policy  Policy review and evaluation  Policy implementation process  Housing Inequality: Low-income housing  Housing Behavior  Growing visibility of individual preferences  Persistent influence of the welfare system  Government role in affecting housing behavior

Current Debates  State vs Market Housing Behavior Individual Preferences Purchasing Power Political Order (Political Capital) Work Units Welfare System Growing Individual Choices Persistent Welfare System Figure 3 A Market Transition Framework for Modeling Housing Behavior HUKOU

Institutional Transformation  Market Transition  Dismantling of the state socialist system  Dismantling of the welfare system  Market Emergence / Institutional Building  Property rights; rules of market transaction; regulations and governance structure  Normative shift  State Role in Market Building  Government actions in low-income housing  Regulation

An Institutional Framework Institutional Constraints in an Emerging Housing Market: A Conceptual Framework Housing Behavior Individual Preferences (Socio-demographic) Political Capital  Economic Capital Imperfect Market o Transaction costs o Information asymmetry o Limited supply Government Actions o Public housing programs o Planning o Land policy Regulatory Framework o Property Rights o Housing finance o Tax and fiscal policy

Proposals  Housing Decisions and Transaction Costs  Unclear property rights  Information disadvantage of residents  High uncertainty of transaction  Continuous policy modifications  Housing Affordability and Public Finance  Government Housing Programs  Low-income residents ’ mobility and residential satisfaction

Hidden Costs in Public Housing Programs  Constraints on Low-income Residents  Limited Supply  Government dominating the decision of public housing programs

谢谢！