The heterogeneity of market supply effects of public housing provision: Empirical evidence from China

• This paper finds the supply of public housing has crowding-out impacts on the supply of market housing in post-reform China but its degree is generally moderate.
• The crowding-out effect of public housing on market housing investment is strong when the share of ECH in total housing investment is sufficiently large, when the price of ECH is very low compared to market housing price, and when the provision of ECH is easily accessible.
• The crowding-out effect of public housing on market housing sale is significant in cases where the share of ECH in total housing sale exceeds a certain threshold level.
• The crowding-out effect changes over time but its estimation accuracy is gradually improving in the sample period.

This paper examines why and how public housing provision may affect the supply of market-based housing in urban China. We illustrate how both the demand mechanism and the cost mechanism may lead to the crowding-out effect of public housing provision on market housing provision in post-reform urban China. Based on panels of both provincial-level and city-level data for the period of 1999–2010, our empirical results shows that: (1) the supply of public housing has crowding-out effect on the supply of market housing in China but its degree is generally moderate; (2) the crowding-out effect varies substantially under different scenarios; (3) the crowding effect changes over time but its estimation accuracy is gradually improving in the sample period. The findings in this paper have useful implications to the design of public housing programs in general.