Simulation Analysis of the Blocking Effect of Transaction Costs in China's Housing Market

Abstract

To examine the blocking effect of transaction costs on household mobility, we construct a housing consumption model including transaction costs and adopt an analog simulation methodology, analyzing how changes in household income and home prices influence household consumption, savings decisions and the transaction costs blocking effect. We find that changes in housing demand are the fundamental cause of the blocking effect of transaction costs. The more demand changes, the greater the blocking effect is. Besides, increased volatility in home prices worsens the household mobility problem with regards to the blocking effect of transaction costs, while a change in household income does not impact the blocking effect of transaction costs on housing consumption. To expand housing consumption, our findings suggest active measures that should be taken by policymakers to reduce transaction costs and stabilize home prices.