Information and housing search: theory and evidence from China market

ABSTRACT

Asymmetric market information plays a role in households’ housing choice. To study this role, we theoretically and empirically examine the varied behaviours between better-informed and less-informed households in a housing market. The housing search model theoretically predicts that better-informed households are more likely to secure a better deal. With the data from Tianjin in China, hedonic models are calibrated to quantify the impacts of asymmetric information on housing search outcomes. The results show that the less-informed homebuyers need to pay around 1~2.3% more than those better-informed homebuyers after controlling the heterogeneity of housing units, which are consistent with the theoretical predictions. It suggests that policies and institutions to alleviate asymmetric information in housing market could improve the welfare of households.

KEYWORDS:

• Imperfect or asymmetric information
• housing search
• reservation
• price premium

JEL CLASSIFICATION:

• R31
• R21
• P25

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Previous literature on housing choice all considers households making decisions by weighting up each attribute, like accessibility to workplace, shopping, and schools etc., housing price, taxes, neighbourhood amenities, availability of public services, dwelling characteristics, and so forth, and then picking the optimal utility (e.g. McFadden 1978; and Quigley 1985).

² For example, Gyourko (1991) points out fiscal zoning restricts the types of home available in sub-urban communities in the US; Rosenthal, Duca, and Gabriel (1991) show that credit rationing prevents liquidity-constrained households from attaining their long-term optimal housing choices in the US; Zheng, Yuming, and Hongyu (2006) find that the poor marketability of the previously state-provided homes, inadequate provision of housing finance, and spatial mismatch between job-market and housing-market prevent the spatial equilibrium from fully reflecting the location preferences of the urban residents in China.

Additional information

Funding

We thank Yuming Fu, Pei Li, Wen-Chi Liao, Yong Tu, Yourong Wang and participants in seminars at National University of Singapore and Central University of Finance and Economics for their useful comments. All remaining errors are ours. This research is supported by the Fundamental Research Funds for the Central Universities, and the Research Funds of Renmin University of China [Grant Number 16XNF022].