Government Land Regulations and Housing Supply Elasticity in Urban China

Abstract

This paper studies the effect of government land supply, allocate and use regulations on housing supply elasticity in urban China. In particular, we first extend the theoretical framework of Saiz (2010), then investigate the marginal effect of each land regulation and calculate the reduction of housing supply elasticity using micro-data of land transactions and satellite-generated data. Our analysis finds that the government land regulations is an important reason for the overall inelasticity of housing supply in 272 Chinese cities, which reduces housing supply elasticity from 1.086 (elastic) to 0.750 (inelastic), a decrease of more than 30%. Among them, the marginal effect of land use regulation is higher than that of land allocate and supply regulations. In addition, physical geographic constraint is also a key factor, its marginal effect even higher than land use regulation.