Effect of Land Supply on Housing Price in China

Abstract

China started to establish a comprehensive real estate market in1998. China government started to intervene the real estate market and restrict the land supply in 2002. From then on, a series provisions had been publicized, which required to forbid private land transactions and establish the national land purchase and reserve system, so that the Chinese government monopolizes the land supply market. Almost at the same time, there was a rapid decline in the China land supply, which corresponded with the steep and continuous increase in housing price. Many theory and empirical literatures conclude that housing price reflect not only economic fundamentals but also government's policies. Therefore, it is reasonable to regard the land policy as a very important factor which affects the China housing price significantly. In this paper, we analyzed the housing demand, housing supply and government's land supply through a theoretical model. Subsequently, we builded a panel data model and analyzed empirically through the data of 35 key cities in China. The result show that there is a significant negative relationship between China land supply and housing price. Especially, when we compared the results before and after China government's land monopolization, we found that the negative relation ship is more prominent after the land macro-control. Therefore, we believe that the increase in housing prices after 2002 can be attributed largely to the tight land policy. Then, we analyzed an individual cities through the time series model. In this process, we builded the empirical model

employed VAR model to find out the impulse response of housing price to land supply. Finally, we concluded that: the housing price in China have already deviated upward from the growth path of economic fundamentals. The restriction of land supply is the most important reason of this. Therefore, if we want to solve the housing price problem, we should not ignore the problem of land supply. The only way to make housing price come back to the normal growth path of economic fundamentals is lifting the constriction of land supply.