Rural-Urban Migration, Structural Transformation, and Housing Markets in China

Abstract

This paper explores the contribution of the structural transformation and urbanization process in the housing market in China. City migration ‡ows combined with an inelastic land supply, due to entry restrictions, has raised house prices. This issue is examined using a multi-sector dynamic general-equilibrium model with migration and housing market. Our quantitative …ndings suggest that this process accounts for about 80 percent of urban housing prices. This mechanism remains valid in an extension calibrated to the two largest cities where housing booms have been particularly noticeable. Overall, supply factors and productivity account for most of the housing price growth.

Housing Price and Fundamentals in a Transition Economy: The Case of the Beijing Market

“…In this regard, recent work by Garriga et al. () has provided an elegant dynamic general equilibrium model that links urbanization to the ongoing structural transformation in China.…”

“…This is in contrast with Chen and Wen (), who treat housing as an investment only, and Garriga et al. (), who mainly focus on the consumption role of housing.…”

“…Garriga et al. () show that the quick rise of house prices in China between 1998 and 2007 can be largely explained by the process of rural migrants entering cities driven by ongoing structural transformations.…”

“…Unlike Chen and Wen () and Garriga et al. (), we focus on one city in China (Beijing) and take its population inflow as exogenous in the main analysis. Although this prevents us from investigating the labor market dynamics, it helps us examine the role of a rich set of fundamentals.…”

“…Theoretical work that models house price path in a transition economy has been relatively limited. Two notable exceptions are Chen and Wen (2017) and Garriga et al (2016). Chen and Wen (2017) present a theory of rational bubble and show that high house price growth relative to income growth in China indicates a bubble that emerges from resource reallocation from the traditional low-productivity sector to the emerging high-productivity sector.…”