Location-dominant Housing Markets: Evidence from Beijing

This paper analyzes price tradeoffs between residential quality and location factors in the Beijing housing market. Unlike most housing markets, location factors completely dominate housing prices in this market. The main reason for this appears to be the physical size of central Beijing, where travel times between different urban activity centers are comparable to typical suburban-urban commuting times in large Western cities. To highlight these location-dominance effects, we present a comparative analysis of housing prices in central Beijing with those of the relatively smaller monocentric city of Qingdao in Eastern China. The main results of this regression analysis are to show that location accessibility factors are far more dominant in Beijing, and conversely that residential quality factors are more important in Qingdao. To further illuminate these differences, we develop a simple two-city model in which the “Big” city has multiple activity centers with travel costs comparable to typical commuting costs in the “Small” city. Here it is shown that the resulting bid-price relations between these cities are quite consistent with our empirical findings. Dafeng Xu and Tony E. Smith Department of Electrical and Systems Engineering University of Pennsylvania, Philadelphia, PA