Mathematical Analysis of Relationship between Land Price and Real Estate Bubbles

Abstract

In the article, the author studies the relationship between land price and real estate bubbles through mathematical analysis. Firstly, through analyzing the situation in foreign countries, the author points out that the rising price of land makes the price of real estate keep rising because the land price is the most important part of real estate price. This is the inner factor of real estate bubbles. The author also summarizes our country's policies about land price and real estate price in recent years. Secondly, according to the international standards, the author takes two typical indexes - the growth rate of land price and the growth rate of development to study the current situation of land price and real estate price. The author points out that there were some little bubbles before 2005, but the bubbles were curbed in 2005. Thirdly, the author focuses on mathematical analysis of relationship between land price and real estate price. The author analyses the land scarcity and its factitious capital which are easy to bring about bubbles. According to the model of rational bubble, the author establishes a series of mathematical formulas. Through these mathematical analysis, the author points out that the relevance between land price and real estate price is obvious, and land price fluctuates with real estate price. When the expectation of land price growth rate is higher than interest rate and the return on land investment is ideal, there will cause a steep rise in land price. The drastic changes of land price provide the basic condition of bubbles, and it will result in real estate forth. Besides this, the author proves that the article's theory is in according with the facts through testing. At the same time, the author also gives countermeasures to real estate bubbles