Abstract
Transaction cost is high in the housing rental market due to heterogeneity of the housing units and associated quality of services provided by the landlord. The two main types of transaction cost are search and information cost. Previous studies often do not differentiate their impact on rental prices. We show that the former has a positive while the latter has a negative impact on rental prices. This paper focus on the latter to explain the emergence of Institutional Rental Market in China. We conjecture that the Institutional Rental Market in China is an institutional arrangement that emerge to reduce information cost and thus rent dissipation. In this market, the real estate agents also act as intermediate landlords. They capture part of the dissipated rent by reducing information cost with their established brand name and standardized renovation to the housing units they rented from individual owners before subletting them out to tenants. The empirical results from a unique dataset from Beijing are consistent with our conjecture.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Ba, S., & Yang, X. (2016). Long-Term Apartment Rentals for Youth—A New Frontier. In “Internet Plus” Pathways to the Transformation of China’s Property Sector (pp. 145–168). Springer, Singapore.
Barzel, Y. (1982). Measurement cost and the organization of markets. The Journal of Law and Economics, 25(1), 27–48.
Barzel, Y. (1997). Economic analysis of property rights. Cambridge University Press.
Barzel, Y. (2004). The law of one price, costly information and law of price convergence.
Coase, R. H. (1937). The nature of the firm. Economica, 4(16), 386–405.
Coase, R. H. (1990). The firm, the market, and the law. University of Chicago Press.
Coase, R. H. (1993). The nature of the firm: Origins, evolution, and development. Oxford University Press.
Cheung, S. N. (1974). A theory of price control. The Journal of Law and Economics, 17(1), 53–71.
Cheung, S. N. (1989). Economic organization and transaction costs. In Allocation, Information and Markets (pp. 77–82). Palgrave Macmillan.
Cheung, S. N. (1998). The transaction costs paradigm 1998 presidential address western economic association. Economic Inquiry, 36, 514–521.
Cheung, S. N. (2020). On a Fallacy in the Coase Theorem and the Theorem of Transaction Costs Substitution. Man and the Economy, 7(2), 20200013.
Clauretie, T. M., & Thistle, P. D. (2007). The effect of time-on-market and location on search costs and anchoring: The case of single-family properties. The Journal of Real Estate Finance and Economics, 35(2), 181–196.
Colwell, P. F., & Munneke, H. J. (2006). Bargaining strength and property class in office markets. The Journal of Real Estate Finance and Economics, 33(3), 197–213.
Devaney, S., & Scofield, D. (2017). Do ‘foreigners’ pay more? The effects of investor type and nationality on office transaction prices in New York City. Journal of Property Research, 34(1), 1–18. https://doi.org/10.1080/09599916.2017.1299197
Harding, J. P., Knight, J. R., & Sirmans, C. (2003). Estimating bargaining effects in hedonic models: Evidence from the housing market. Real Estate Economics, 31(4), 601–622.
Ihlanfeldt, K., & Mayock, T. (2012). Information, search, and house prices: Revisited. The Journal of Real Estate Finance and Economics, 44(1–2), 90–115.
Isard, P. (1977). How far can we push the" law of one price"? The American Economic Review, 67(5), 942–948.
Lambson, V. E., McQueen, G. R., & Slade, B. A. (2004). Do out-of-state buyers pay more for real estate? An examination of anchoring-induced bias and search costs. Real Estate Economics, 32(1), 85–126.
Larsen, J. E. (2010). The impact of buyer-type on house price: Some evidence from the USA. International Journal of Housing Markets and Analysis, 3(1), 60–68.
Li, L., & Chau, K. W. (2019). Information asymmetry with heterogeneous buyers and sellers in the housing market. Available at SSRN 3364126.
Liu, Y., Gallimore, P., & Wiley, J. A. (2015). Nonlocal office investors: Anchored by their markets and impaired by their distance. The Journal of Real Estate Finance and Economics, 50(1), 129–149.
McChesney, F. S., Shughart, W. F., & Haddock, D. D. (2004). On the internal contradictions of the law of one price. Economic Inquiry, 42(4), 706–716.
Miller, N., Sklarz, M., & Real, N. (1988). Japanese purchases, exchange rates and speculation in residential real estate markets. Journal of Real Estate Research, 3(3), 39–49.
Neo, P. H., Ong, S. E., & Tu, Y. (2008). Buyer exuberance and price premium. Urban Studies, 45(2), 331–345.
North, D. C. (1993). The new institutional economics and development. Economic History, 9309002, 1–8.
Stigler, G. J. (1961). The economics of information. Journal of Political Economy, 69(3), 213–225. https://doi.org/10.1086/258464
Turnbull, G. K., & Sirmans, C. F. (1993). Information, search, and house prices. Regional Science and Urban Economics, 23(4), 545–557.
Watkins, C. (1998). Are new entrants to the residential property market informationally disadvantaged? Journal of Property Research, 15(1), 57–70.
Xu, Y., & Liu, H. (2015). Development of Institution Lessors in China’s Rental Housing Market. China Real Estate, 11X, 3–9.
Zhou, X., Gibler, K., & Zahirovic-Herbert, V. (2015). Asymmetric buyer information influence on price in a homogeneous housing market. Urban Studies, 52(5), 891–905.
Acknowledgements
We gratefully acknowledge the financial support provided by the GRF of the Research Grant Council of the Hong Kong Special Administrative Region (Project Reference Number: 106200296)
Author information
Authors and Affiliations
Corresponding author
Additional information
Publisher's Note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Rights and permissions
About this article
Cite this article
Yang, T., Da Huo, D., Choy, L.H.T. et al. The Impact of Measurement and Pricing Cost on Rental Transaction Prices – Evidence from the Institutional Rental Housing Market in Beijing. J Real Estate Finan Econ 66, 119–140 (2023). https://doi.org/10.1007/s11146-022-09899-9
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s11146-022-09899-9