Competition of Attracting Investment，Residential Land Prices and Housing Prices

Abstract

The competition for industrial investment among local governments has distorted the allocation of construction land and brought the rising pressure on residential land prices and housing prices. The existing literature ignores the transmission mechanism between the competition of attracting investment and residential land prices as well as housing prices. Based on the panel data of 104 Chinese major cities from 2009 to 2015, and applying the mediation effect method, this paper investigates the mechanism of attracting investment competition affecting residential land prices and housing prices. The study demonstrates that the competition of attracting investment has significantly increased residential land prices and housing prices. Specifically, the competition of attracting investment mainly raises residential land prices by reducing the supply elasticity of residential land, decreasing the per capita living land area and strengthening the rigidity of housing demand. And the competition promotes housing prices through the paths of increasing government intervention, reducing the supply elasticity of residential land and improving the level of industrial agglomeration. Compared with the housing price, the price of residential land is not sensitive to demand shock because of the influence of the government’s administrative intervention. Furthermore, the competition of attracting investment in the eastern region has remarkably increased residential land prices and housing prices, while the competition in the central and western regions has a significant negative impact on residential land prices and the impact on housing prices is insignificant. And the effect of attracting investment competition in provincial capitals on promoting residential land prices and housing prices is significantly higher than that in general prefecture-level cities. The conclusion of the paper reveals the inefficiency problem under the intervention of local governments. The key to realize the healthy and coordinated development of the real estate industry and the regional balanced development is to reconstruct the incentive mechanism of local governments, improve the market-based allocation of construction land, and optimize the allocation of industrial resources. Compared with the existing literature, the main contributions of this paper lie in three aspects: Firstly, this paper explains the mechanism of attracting investment competition affecting residential land prices and housing prices, deepening the understanding of the political and economic logic behind the Chinese real estate market. Secondly, this paper explores the channels through which the competition of attracting investment affects residential land prices and housing prices. Thirdly, breaking the single research perspective, this paper examines the heterogeneous impact of attracting investment competition on residential land prices and housing prices in cities with different geographical locations and cities at different administrative levels, providing economic logic inspiration for differentiated housing prices in China.