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Expectation, Income Inequality and the Puzzle of City’s Housing Price to Rent Scissors in China
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TitleExpectation, Income Inequality and the Puzzle of City’s Housing Price to Rent Scissors in China  
AuthorGao Bo Wang Wenli and Li Xiang  
OrganizationSchool of Economics, Nanjing University,, 
Key WordsHousing Price to Rent; Scissors; Tenure Choice; Expectation; Income Inequality 
AbstractThe city’s housing sale prices has increased rapidly than rent prices and the bubble of housing price become stably in China since 2003, which is called the Puzzle of City’s Housing Price to Rent Scissors. This paper constructs house buyer’s and renter’s consumption choice theory model based on resident’s tenure choice mechanism, empirically tests and explains the puzzle by dynamic panel model System-GMM using the panel data of 35 large and middle cities in China. The results demonstrate that residents are prone to buy house in tenure choice and that will boost the housing price to rent. Besides, the housing price to rent will decrease under adaptive expectation and increase under rational expectation. The increasing income gap among urban residents is the main factor to promote the housing price to rent. Take into account all the factor, the per-disposable income of urban residents has the most magnificent impact on the housing price to rent. Therefore, in order to cut down city’s housing price to rent ratio and avoid the housing price bubble swelling and smashing, it needs to improve the income distribution system and reduce the income gap continuously, strengthen the management of housing price expectation, cultivate rental housing market, guide residents’ reasonable housing consumption, and suppress the real estate investment and speculation. 
Serial NumberWP455 
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