Response or avoidance: The reaction of local governments to the central government's housing market control policies

Abstract

It is a well-documented phenomenon that housing market control policies in many Chinese cities do not work as expected. Understanding why and how these policies come with limited effects is a prominent puzzle in related literature. As a possible explanation, this paper analyzes the policy adoption process from the dysfunctional relationship between central and local governments. From the data of housing market control policies at the municipal level in 2016 and 2017, this paper quantifies the policy adoption process of housing policies from two perspectives: response speed and response intensity. We examine the effect of the fiscal performance of local governments on the adoption of housing market control policies. Empirical results suggest that local governments with better fiscal performance are more likely to formulate housing market control policies and employ more policy instruments. Further investigation indicates that the increase in land revenue and political pressure (i.e., the land price monitoring) may weaken the effect of fiscal performance. This could provide a new insight for analyzing the housing policies in China.