Property rights and housing prices: An empirical study of small property rights housing in Shenzhen, China

Abstract

Small Property Rights Housing (SPRH) is an important part of informal housing in China. SPRH is defined as housing developed with collective land ownership that is then sold to outside homebuyers such as non-indigenous villagers. This housing practice is legally forbidden and comes without formal titles. SPRH is popular in big Chinese cities where formal housing prices are constantly rising and increasingly unaffordable for many urban residents. However, research on SPRH is rare. Therefore, this study aims to investigate the effects (or the lack thereof) of de-jure property rights on housing prices by using the empirical case of Shenzhen where SPRH and FPRH estates constitute the main sources of urban housing for its residents. We collected both SPRH and formal Full Property Right Housing (FPRH) data in the Shenzhen housing market and adopted the Boundary Fixed Effect method and matching strategy to mitigate the bias caused by unobservable location and neighborhood factors. This empirical study shows that the lack of de-jure property rights has negative and significant effects on housing prices. The average housing price for SPRH apartments is, ceteris paribus, 52.82% lower than for formal FPRH apartments. Also, the premium of property rights varies across two administrative regions with different locations and economic environments, and the premium decreases as the age of the building increases.