Government intervention in land market and its impacts on land supply and new housing supply: Evidence from major Chinese markets

Abstract

Government intervention in the land market can have profound impacts on real estate market outcomes. On the supply side, government intervention in the land market can lead to a decline in the amount of land available for housing development, which in turn will put downward pressure on new housing supply. Although there are a growing number of studies examining the impact that government intervention in the land market has on new housing supply in developed countries, scant attention has been devoted to emerging market economies which are undergoing both rapid economic growth and significant institutional change. The Chinese government has acquired complete control over urban residential land supply and imposed more stringent regulatory constraints on rural-urban land conversion since 2004. Thus, China's real estate market provides a good opportunity to examine the impacts that government intervention in land market has on land supply and new housing supply in fast-growing developing countries. This research investigates the process leading to stronger government intervention in the land market in China and examines the impacts that government intervention in the land market has on residential land supply and new housing supply in 16 major Chinese cities. It is found that there was a decline in residential land supply after the Chinese government strengthened the intervention in the land market. The rates of the decline in land supply varied across cities. It was highest in the largest cities, and lowest in some medium-sized cities with a relatively large amount of agricultural land. By estimating the models of new housing supply, it is found that land supply is positively related to new housing supply, and thus the decline in land supply after the Chinese government strengthened the intervention in land market has put downward pressure on new housing supply. It is also found that there was a significant decline in housing supply elasticity after the Chinese government strengthened the intervention in the land market.