Does the High Housing Price Curb the Investment Scale of Private Enterprises?

Wang Fang; Yao Lingzhen

doi:doi:10.16538/j.cnki.jfe.2018.08.007

Summary

Compared to the booming real estate market, the real economy is in incompetent development. The housing price keeps growing for all these years, yet the investment scale of private enterprises is slowing down or even declining in terms of the total volume. Does this mean that the housing price and the investment scale of private enterprises are correlated in a negative way? This paper discusses the relationship between the two by analyzing the characteristics of private enterprises.　　The impact of high housing prices on corporate investment works in both positive （the collateral effect） and negative （the cost effect） ways. The collateral effect is crucial for large-scale enterprises with relatively rich mortgage assets to ease financial constraints when housing prices rise. However, most of the private enterprises in China are small, and the fixed assets owned by these enterprises are relatively limited. Furthermore, available studies have found that private enterprises face discrimination in the acquisition of credit resources, which makes it more difficult for private enterprises to obtain loans. Besides, the rising housing prices will affect enterprises’ investment through the cost effect as well. It will push up enterprises’ labor costs and increase leasing costs for land, office space and factory buildings, while most small and medium-sized private enterprises have a low market share and lack technological competitiveness. These enterprises are more sensitive to rising costs caused by the rising housing prices.　　We use the data of the tenth China’s Private Enterprises Survey in 2012 to testify the relationship between housing prices and the investment scale of private enterprises. The empirical result shows that higher housing prices inhibit the investment scale of private enterprises. Further analyses reveal that higher housing prices push up employee compensation levels and the cost of land leases, yet fail to ease the financing constraints of private enterprises. In other words, this indicates that the cost effect brought by housing prices is predominant.　　Housing prices not only affect the investment scale of private enterprises, but also affect the investment direction of private enterprises. This paper further examines the impact of high housing prices on private enterprises’ investment. We find that with the constantly growing housing prices, private enterprises will increase the investment in the real estate industry instead of reproduction and R&D investment. Such conditions prevent private enterprises to deviate from the real economy and turn to the virtual economy.　　However, whether enterprises enter the real estate industry is influenced by the heterogeneity of enterprises and the policy environment. We use interaction terms of the enterprise size, the political relationship and housing price characteristics to investigate the influence of private enterprise heterogeneity on the investment direction. We find that large-scale and politically-connected private enterprises are prone to expand real estate investment and reduce industrial investment. At the same time, in order to investigate the investment decision diversities of private enterprises under different policy environments, we also introduce interaction terms of limited purchase policies and housing price characteristics. We find that real estate regulation policies help to restrain enterprises’ behaviors to deviate from the real economy and turn to the virtual economy.　　Compared with previous studies, we pay more attention to the negative consequence of rising housing prices on enterprises’ investment and how it works. This study offers a more comprehensive vision to understand the relationship between housing prices and enterprises’ investment behaviors, and provides empirical evidence on the investment behavior of small and medium-sized private enterprises.