Search, Information Friction, and the Housing Market

This research investigates the profound influence of information friction on housing market outcomes in Beijing, China. Leveraging an extensive dataset of administrative micro-level housing resale transactions, we employ a boundary discontinuity design and difference-in-differences model to explore the consequences of prohibiting school-district-quality labels in the online listing information. The resulting surge in information friction during the housing search process yields fascinating insights. Our results show the prohibition leads to a 2.55% reduction in transaction prices and a 22.99% increase in the seller's time on the market for the houses corresponding to the key primary schools, in comparison to the other houses. The extended time on the market is primarily attributed to the heightened challenges that potential buyers face in finding their ideal dwellings. Moreover, the changes in buyers' search behavior and sellers' time on the market prompt the sellers to lower the listing prices to attract potential buyers and lead to lower transaction prices. Overall, the empirical evidence highlights the importance of information friction during the housing search process.