Factor reallocation and housing market: How to improve city
There have been two stages in the development of China's housing market. The first stage followed the economic reforms of the1980s. As economic reform progressed, there was a massive labour transformation from conventional, less productive sectors of the economy to an emerging productive sector - the housing construction market. The rate of return to capital investment in the emerging housing sector remained high during the transition stage because of the large pool of “surplus” labour gradually unleashed from traditional sectors. During this time, city productivity increased a lot. However, the high productivity or economic growth which resulted from the initial factor misallocation could not persist (Chen and Wen, 2017). At the same time, in consequence of the relatively low risk, low entry costs, and high profits in housing investment, the housing bubble attracted many productive and high-tech firms in China to reallocate resources from research and development to the real estate market. In an economy in transition from a labour-intensive economy to a capital-intensive economy, such resource misallocation can be very costly: it may substantially prolong China’s economic transition and reduce China’s TFP growth, especially when its population is aging fast and labour costs are rapidly rising. After realising that factor misallocations had negative influences on economic development, the return to capital decreased and housing investment sharply reduced and this has now shaped a the second stage of housing market development. Now, capital and labour are leaving the housing construction market. These changes constitute processes of factor reallocation.
Research Interests: housing affordability; city productivity; housing policy; urban renewal.