International Real Estate
Paper Session
Saturday, Jan. 7, 2017 7:30 PM – 9:30 PM
Sheraton Grand Chicago, Huron
- Chair: Gary Painter, University of Southern California
Strategic Land Pricing Among Chinese Cities
Abstract
With rapid urbanization and decentralization of public finances in China, cities have struggled to manage their budgets. By leasing land they have been able to both finance infrastructure improvements and generate revenues for the provision of public services. In this context, this paper presents a model of the strategic pricing behavior of Chinese cities as they determine how much land to lease and what prices to charge for the land leases. They effectively sell the land asset at a price that may or may not reflect its market value, and in so doing they buy a flow of funds in the form of business tax (BT) and value added tax (VAT) revenue from the economic activity generated using the land. Cities retain all of the BT revenue, but receive only one-quarter of VAT revenue generated in their jurisdiction returned from the central government. A theoretical model is presented explaining how a land-providing monopolist may deviate from the usual monopoly pricing rule of operating at the unitary elastic point of the land demand curve, depending on the share of tax revenue that can be retained from economic activity in the city. Using data from prefecture and provincial level cities over the period 2003-2011 and fiscal data on BT and VAT shares of revenue in city budgets, the implications of the theoretical model are tested. Empirical tests of strategic pricing indicate that cities more reliant on VAT revenue operate at the unitary elastic point of their land demand curve, but cities that are able to retain a larger share of BT revenue operate below the unitary elastic point, charging lower lease prices and leasing more land.Structure Depreciation and the Production of Real Estate Services
Abstract
This study simultaneously analyzes the real estate production function and economic depreciation of structures by using data from Japan and the U.S. The estimated share of structure value is used to infer returns to scale, the land-structure substitution, and the structure depreciation rate. Real estate exhibits approximately constant returns in Japan, but decreasing returns in the U.S. Land and structures are gross substitutes in both countries. The land value ratio is 10% in Centre County, PA, but 60%-70% in Japan, reflecting the scarcity of land. The property depreciation rate is larger for newer and denser properties located further away from the downtown area in a smaller city. The structure depreciation rate corrected for a survivorship bias significantly varies by property type and country: approximately 7% for residential properties and 10% for commercial properties in Japan in contrast with 1% for residential structures in the U.S. These results serve as important inputs for macro, financial, urban, and real estate economic models.Urban Housing Privatization and Household Saving in China
Abstract
During the past three decades, the housing market in China has transformed from an employer-based public housing system to a private market. This transformation began with some pilot experiments in selected cities in the 1970s and ended with a radical reform in 1998, when the provision of public housing is completely prohibited. This paper studies how the 1998 reform and the resulting rapid housing price affected the saving behaviors of urban households. We find the reform raises urban household saving rates during the reform period(1998-2001). Furthermore, we find cities with more rapid privatization are associated with higher household saving rates during the reform period and higher housing prices after the reform period(post 2001). The higher housing prices impose a larger financial burden on urban households and encourage them to save even more after the reform period.Discussant(s)
Christian Redfearn
, University of Southern California
Charles Ka Yui Leung
, City University of Hong Kong
Morris A. Davis
, Rutgers University
Siqi Zheng
, Tsinghua University
JEL Classifications
- D1 - Household Behavior and Family Economics
- R1 - General Regional Economics