A tale of two districts: The impact of district consolidation on property values in Shanghai

https://doi.org/10.1016/j.regsciurbeco.2021.103647Get rights and content

Highlights

  • The effect of district consolidation, a momentous change in administrative division, on property values has seldomly studied.

  • We explore the response of property values to a district consolidation case in Shanghai by boundary difference-in-difference.

  • The consolidation causes a rise in property values by 1.6% in the consolidated two districts.

  • The impact of consolidation on property values in the more developed Jing'an is insignificant.

  • The property values in less-developed Zhabei have increased by 4.8% since the consolidation is reported.

Abstract

The consolidation of municipal districts is a momentous change in administrative divisions, which are formulated by municipal governments to optimize the layout of urban functions and coordinate regional development. How the consolidation of municipal districts affects property values in relevant areas has yet to be empirically tested. Using resold property transaction micro-data, this study empirically explores the impact of the consolidation of Jing'an and Zhabei districts in Shanghai on the property values via boundary difference-in-difference estimation. Empirical results show that, during the sample period, i) the overall property values in the consolidated region increased by 1.6% after the consolidation, ii) the consolidation increased property values by 4.8% in the less developed Zhabei but had no significant impact on the property values in the more developed Jing'an, and iii) the consolidation had an expanding impact on the property values in Zhabei district over time.

Introduction

Administration divisions are important institutional arrangements that divide a country into smaller units to make managing the land and the affairs of the people easy. In most countries, the system of municipal/city, borough/district, and county plays a crucial role in the administrative division system. For instance, the consolidation of New York City in 1898, when New York County, Kings County, Queens County, and Richmond County were consolidated into one municipal government, abolished the former municipalities in Kings and Richmond and divided New York City into five boroughs. Moreover, since New Orleans combined with Orleans Parish in 1805, 33 city–county consolidations transpired until 2003, with approximately two consolidations per decade occurring since World War II and four in the 1990s (Hardy, 2005). Unlike the United States, China's Constitution stipulates that “Municipalities directly under the Central Government and other large cities are divided into districts and counties (Article 30).” In China, although district and county are county-level administrative units,1 the two differ considerably in administrative authority. A county enjoys more autonomy than a municipal district in fiscal and economic policy but receives lesser subsidy and urban planning from the municipal government. In the era of the planned economy, China's administrative division adjustment is subject to political needs. After China's reform and opening up in 1978, the adjustment of administrative divisions often reflects the economic aspirations of the local government.

Fiscal decentralization is an important aspect of China's multifaceted reform, which intensifies the administrative division system by providing increased autonomy to local government and introducing competition among jurisdictions. Fiscal decentralization is widely perceived as making a positive contribution to local economic growth in China(Zhang and Zou, 1998; Lin and Liu, 2000; Jin et al., 2005). As an institutional construct, administrative division leads to a certain degree of regional segmentation, which hinders the transregional flow of resource and production factors, the establishment of reasonable industrial coordination, and the formation of an integrated market. Administrative division may also constrain the further expansion of municipalities. Since 2000, two types of administrative division adjustments aiming to weaken the boundary barriers of administrative districts have been carried out by the local government, namely, “turning counties into districts” (Che Xian She Qu) and the consolidation of municipal districts. The first adjustment, “turning counties into districts”, directly converts several counties in a particular municipality to municipal districts and is an important measure for a municipal government to expand its urban area. Several studies empirically investigate the effects of “turning counties into districts” (Tang and Hewings, 2017). The consolidation of municipal districts differs from the first adjustment in two ways. The consolidation of municipal districts usually takes place in the municipality's downtown area, whereas “turning counties into districts” typically occurs in suburban areas. In addition, the consolidation of municipal districts directly cuts down administration and executive expense. In recent years, representative cases of the consolidation of municipal districts include Chongwen merging with Dongcheng and Xuanwu merging with Xicheng in Beijing in 2010, Luwan merging with Huangpu in Shanghai in 2011, Xiaguan merging with Gulou and Baixia merging with Qinhuai in Nanjing in 2013, Luogang merging with Huangbu in Guangzhou in 2014, and Zhabei merging with Jing'an in Shanghai in 2015. In previous literature, studies on the consolidation of municipal districts are scarce.

The previous literature classifies the system of administrative divisions into fragmented and consolidated structures. Proponents of the fragmented structure consider fragmented jurisdictions conducive to providing residents and firms with a diversified combination of tax rates and public goods, which satisfy the heterogeneous preference in society. Fragmented jurisdictions also stimulate governmental competition, which benefits the efficiency improvement of tax collection and public goods provision(Tiebout, 1956; Ostrom et al., 1961; Ostrom, 1972). Critics of the fragmented structure consider that fragmented jurisdictions tend to damage the economies of scales in public goods provision(Boyne, 1992); aggravate the regional external cost, such as pollution and public security(Hawkins et al., 1991); and increase transaction cost by exposing residents and firms to multiple local governments(Feiock and Jeong, 2002). By contrast, consolidated jurisdictions can integrate resources and allocate fiscal resources to areas with greater benefits(Keating, 1995; Lowery, 2000). However, conclusions about which is better are diverse. This paper provides new evidence from resold property market based on a quasi-experiment from the consolidation case in China.

Administrative division adjustment is an almost irreversible policy that requires the local government to comprehensively evaluate the potential effects. Given that the consolidation of municipal districts involves the most populous and developed downtown areas in a particular municipality, the municipal government should take utmost care in making such a decision. In recent years, China's central authority has required local government to take responsibility for stabilizing housing prices. The efforts of local governments in stabilizing housing prices are highly requested by China's central authority. Will the consolidation of municipal districts, which is not a policy aimed at housing prices, affect housing prices in relevant areas? This important question is worth studying but often overlooked in the extant literature.

Using the resold apartment transaction micro-data from Lianjia, the largest real estate agent company in Shanghai, we explore the responses of property values to the consolidation of two districts in Shanghai, originally named Jing'an and Zhabei in 2015. Three mechanisms may affect the property values in Jing'an and Zhabei. First, the consolidation of two districts increases the property values for both districts by exploiting the economies of scale. Such consolidation clears away the previous district boundary, which facilitates the intra-regional movement of people, goods, information, capital and services and also promotes industrial agglomeration. Second, the consolidation leads to transfers from the more-developed district to the less-developed district because of the altering access of residents to public goods, which further leads to different impacts on property values in Jing'an and Zhabei respectively. Before the consolidation, superior public goods, such as schools and hospitals, in the more-developed Jing'an can only be enjoyed by residents in Jing'an. However, the consolidation leads to the redistribution of public goods. Residents in Zhabei obtain the right to enjoy the better public goods in Jing'an, which may then be diluted. Thus, people may “vote with their feet” and transfer from Jing'an to Zhabei, which leads to the increase in property values in Zhabei and decrease of those in Jing'an. Third, the consolidation can raise the property values in Zhabei by enhancing the reputation. Due to historical reasons, Jing'an is the traditional “brownstone district”. However, Zhabei is widely acknowledged as a “poor district” that lacks a certain charm in attracting migrants and capital investment. Through the reputation effect, the consolidation can make Zhabei an up-and-coming district and thus increase the property values in Zhabei without hurting those of Jing'an.

Specifically, we detect the changes in property values in the new consolidated district, original Zhabei and original Jing'an respectively through boundary difference-in-difference (DID) analysis. With detailed transaction data on resold properties, we find that the consolidation had a significant effect on property values. First, property values in the new consolidated district increased by around 1.6%. Second, the consolidation increased property values by 4.8% in the less developed Zhabei but had no significant impact in the more developed Jing'an. Third, the consolidation had an expanding impact over time on the property values in Zhabei since the consolidation was realized. Results remain robust when controlling for location and different control groups and bandwidths. The above results are consistent with the reputation effect. However, the effects of transfers and economies of scale on property values cannot be ruled out due to data restriction. These two effects may counterbalance each other in Jing'an but may be integrated into reputation effect in Zhabei.

Compared with previous studies, this work manifests two distinctive features. First, although previous studies discuss the consolidation of municipal districts on economic growth, the effect of municipal district consolidations on property values is little studied. The discussion of fragmented structure and consolidated structure has not been resolved, so this paper provides an empirical case from China from the perspective of real estate market. Second, the micro-data of resold property used in this paper provides more accurate information for estimating the effect of consolidation on property values. Previous studies about China's real estate market usually use aggregate data of property values. As properties are heterogeneous across places, the aggregated property values may be biased owing to heterogenous properties. The micro-data of resold property transactions with detailed property characteristics and geographical information help us make comparisons along the boundaries between the different districts to estimate the effect of consolidation on property values accurately. The frequency of the data is daily, which helps us distinguish the timely changes of property values.

The rest of the paper is organized as follows. In Section 2, we review the related literature and the background about the administrative division adjustment in China. In Section 3, we describe the data and empirical models. Section 4 reports the estimation results. The robustness tests are in Section 5. Section 6 concludes.

Section snippets

Administration division and structure

Administration division has received increasing attention in academia. An important manifestation of administrative division is the competition among local governments (Stigler, 1972). Competition among local governments occur in various forms, including competition for absorbing labor and capital(Brennan and Buchanan, 1980), competition for environmental permits (Cumberland, 1981), “race-to-the-bottom” competition for setting welfare level (Dahlberg and Edmark, 2008), institutional competition

Data description

This study uses the resold apartment transaction data from Shanghai Lianjia Real Estate Agency Co., Ltd. China has no official housing resale system, so most transactions must be conducted via property agencies. As the largest resold property agency in Shanghai, Lianjia has more than 2000 chain stores which cover almost all neighborhoods in Shanghai. Almost 1/3 of resold apartments in Shanghai are transacted via Lianjia, but only no more than 10% from the second largest agency.6

Overall impact of district consolidation on property values

First, we use Eq. (2) to estimate the overall impact of the consolidation of Jing'an and Zhabei on the property values in the two districts. Table 3 provides the detailed results. Column (1) shows that, without controlling for any property characteristic, the impact of consolidation on property values is insignificant. The impact of district consolidation on property values becomes significant by adding property characteristics into regressions. Columns (2)–(5) show that the consolidation

Parallel trend test

This study estimates the impact of district consolidation on property values by using DID. The reliability of DID estimation depends on the parallel trend assumption, which states that the trend of property values in treatment and control groups should be parallel if the consolidation of two districts has no external impact. To test the parallel trend assumption, we use the result of the dynamic estimation to carry out a parameter test by adding the interaction of time dummies and the

Conclusion

Administrative boundary adjustment plays an important role in promoting urbanization and regional development. However, the effect of consolidation of municipal districts on the real estate market is not widely studied.

This study exploits the quasi-experiment of consolidation of Zhabei and Jing'an of Shanghai in 2015. We adopt DID estimation to evaluate the effect of consolidation of municipal districts on the property values based on the micro-data of resold property transactions from Lianjia,

Author statement

Huayi Yu: Conceptualization, Data curation, Funding acquisition, Resources, Formal analysis, Validation, Project administration, Supervision, Writing – review & editing. Yujuan Hou: Methodology, Formal analysis, Investigation, Software, Validation, Visualization, Writing – original draft, Writing – review & editing

Declaration of competing interest

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.

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  • We are grateful to Stephen Ross and two anonymous referees for their insightful suggestions. We also thank Jun Han, Yongmiao Hong, Shanjun Li, Xuejuan Su, and Yinggang Zhou for helpful comments. We thank Lianjia for granting the use of their confidential transactions data for analysis. This paper is supported by the National Natural Science Foundation of China (No 71874195). All remaining errors are our own.

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