The impact of institutional arrangements on the transaction price of informal housing : evidence from Shenzhen, China

Abstract

Small property rights (SPR) housing is a form of informal housing that has proliferated in China in the last few decades. Despite the absence of legal title, various forms of SPR housing have been actively transacted in the black markets with the help of the spontaneously evolved rules. Such a dilemma situation is boasted with de facto rights but without full de jure right. Responding to the black market, regulations have been newly enacted together with the existed formal institutions trying to formalize the partial property right of SPR owner. It has piqued the interests of some researchers. Due to a lack of data, there has been very limited research on the value of SPR. This study aims to fill in the knowledge gap by investigating the impact of institutional arrangements on the transaction prices of SPR with a particular focus on the direct and indirect influence of formal institutions on the black market. There are both theoretical and empirical contributions to this thesis. First, from a theoretical standpoint, a proposition is developed based on the analysis of transaction cost to explain the variation in the observed transaction prices of different SPR housing units. Sanction cost is put forward as the cost of the SPR initiators to borrow the legal system to help to govern the transactions in the second-hand market indirectly. Higher sanction cost will lead to lower SPR value to the buyer and thus lower observed transaction prices. However, the direct intervention of formal system delineating the partial property right clearer does not necessarily lead to higher property value. Instead, it depends on not only how clearer the property rights are outlined but the transaction cost of getting the title as well. Besides, there is no official transaction record of SPR from the angle of empirical analysis. I collected data from the Internet for empirical study. Also, the SPR units are rather heterogeneous and spread across a large area with few location attributes i in the empirical model. Based on three spatial econometric models, this study relaxes the independence assumption of housing purchase behaviors and overcome the self-selection bias of the models. The key findings firstly show that the transaction price of SPR on military land is the highest followed, in order transaction prices, by those on collectively owned industrial land, collectively owned land managed by village committees and those without the presence of village committees. The results confirm the hypothesis that the value of SPR is negatively correlated with the ability to borrow the legal system indirectly. Secondly, SPR with an official green book is not necessarily more valuable as it hampers further transfer of titles. Green book, as an official document supposed to have a lower transaction in delineating property right, proves and enforces the ownership of the SPR but at the same time also removes the rights to transfer the properties from the owner. The result is consistent with the hypothesis two of this study.