Housing of Limited Property Rights: A Paradox Inside and Outside Chinese Cities

Abstract

This paper develops a prototypal theoretical framework for analyzing property inalienability and applies it to housing of limited property rights in China, which includes so-called ‘small-property-rights housing’ in the countryside (SLPR housing) and the affordable housing programme in the city (ALPR housing). The integrated analysis of ALPR and SLPR housing focuses on inalienability restrictions to ownership entitlement. By preserving current property use, inalienability can address externality, public good and even macro-economic problems that arise from property sales. Both ALPR and SLPR provide good empirical support for the theoretical hypotheses. Moreover, they demonstrate some important functions of inalienability in a transitional economy, including helping to maintain macro stability as well as being an important tool for implementing partial reform strategy. Inalienability is also a second-best tool to protect private property rights against the intervention of local political forces. However, various problems with ALPR and SLPR housing show that inalienability is also a rough tool that needs to be improved or replaced in order to achieve micro-economic efficiency.