'The Effects of Transaction Taxes on the Housing Market in China: Evidence from Shanghai' (JMP) (latest version here)

Many governments have encouraged low-income housing; however, affordability concerns for the middle class are often overlooked. In 2005 the Shanghai government began to promote the supply of middle-class houses (i.e., mid-sized houses at reasonable prices) with the introduction of relative lower transaction tax rates for housing units below 140 square meters (sqm). This paper uses novel data to assess the consequences of these transaction taxes on the housing market in Shanghai. I find that the combination of a 1.5\% relative decrease in the deed tax and a 5.5\% relative decrease in sales tax for housing units below 140 sqm increased the supply of units that were 100 - 140 sqm by 41.3\% compared to units that were 140 - 180 sqm. I also find that the relative lower transaction taxes led to a 6.55\% decrease in the average price of housing units below 140 sqm compared to those above, and I present evidence that suggests this price decrease resulted from shifts in the composition of units developed after the policy. Overall, my results show that transaction taxes in Shanghai had substantial consequences on the distribution of house sizes.

 


Working in Progress

'The Stringency of Hukou Qualification and Internal Migration Flows in China'