Under Control? Price Ceiling, Queuing, and Misallocation: Evidence from the Housing Market in China
Qiyao Zhou
In this paper, I develop a model to study the equilibrium effects of price control policies. My framework considers the option for consumers to wait and reenter the market if items are not immediately allocated due to excess demand. While waiting is common when price ceilings lead to limited supply, the cost of waiting has received limited attention in prior research. I study the housing market in Shanghai, where a price ceiling has been imposed on new houses since 2017. I have compiled a new dataset incorporating sales, characteristics of new and existing houses, and records of households’ participation in housing lotteries. Using a structural model, I estimate household demand, housing supply, and waiting costs. I estimate that the price ceiling on new houses resulted in a social welfare loss of 13 billion USD from 2018 to 2020. Consumer surplus increased by 1.3 billion USD, as most of the gains from lower prices of new houses were offset by waiting costs and misallocation. Counterfactual analyses suggest that distributing a discount voucher to buyers rather than imposing a price ceiling could significantly reduce the welfare loss and achieve more equitable outcomes.
Event: World Bank Land Conference 2024 - Washington
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