Modeling Institutional Constraints on Housing Behavior in China:

1. International Conference on China’s Urban Land and Housing in the 21st Century, Hong Kong Modeling Institutional Constraints on Housing Behavior in China: Conceptual and Methodological Challenges Zhilin Liu School of Public Policy & Management Tsinghua University, Beijing, China 13-15 December 2007

2. 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

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

4. 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, 1995-2004 Source: Beijing Statistical Bureau, various years

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

6. 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

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

8. 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

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

10. 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

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

12. 谢谢！