Status Competition and Housing Prices

Abstract

While in standard housing economics housing is regarded as an asset and a consumption good, we study in this paper the consequences for housing prices if housing is also a status good.More concretely, if a family's housing wealth relative to others is an important marker for relative status in the marriage market, then competition for marriage partners might motivate people to pursue a bigger and more expensive house/apartment beyond its direct consumption (and financial investment) value.To test the empirical validity of the hypothesis, we have to overcome the usual difficulty of not being able to observe the intensity of status competition.Our innovation is to explore regional variations in the sex ratio for the pre-marital age cohort across China, which likely has triggered variations in the intensity of competition in the marriage market.The empirical evidence appears to support this hypothesis.We estimate that due to the status good feature of housing, a rise in the sex ratio accounts for 30-48% of the rise in real urban housing prices in China during 2003-2009.

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