Market development, state intervention, and the dynamics of new housing investment in China

Abstract

This article examines the temporal and spatial variations in the dynamics of China's new housing investment and how they were shaped by the development of private markets and persistent state interventions. Using panel data collected for 35 cities from 1999 to 2013, it measures the price elasticity of housing investment to see how housing production responded to housing price changes. It finds that the price elasticity was about 5 from 1999 to 2008, in the range of what studies of market economies have reported. This shows that China succeeded in establishing a market-driven housing supply system. Price elasticity turned negative from 2009 to 2011, indicating a state-driven housing supply system as the Chinese state took unprecedented actions to stimulate the economy in response to the global financial crisis. Elasticity remained negative in 2012 and 2013 but at a reduced scale. Meanwhile, housing investment became much larger after 2008 than before. These changes show that China's stimulus measures had lasting impacts on the housing industry. Price elasticity is also found to be lower in the eastern region than in the other regions, indicating constraints in the region's housing production. These findings have important implications in our understanding of Chinese housing markets and housing policies.

State Intervention in Land Supply and Its Impact on Real Estate Investment in China: Evidence from Prefecture-Level Cities

“…Presently, despite the fact that land supply has been widely acknowledged as a critical tool by the state to manage real estate investment in China (e.g., references [7,8]), few studies have incorporated land supply as an independent variable in explaining the dynamics of real estate investment in econometric analysis. Based on their study of 35 major Chinese cities, Deng and Chen find that land supply has a statistically significant and positive effect on housing investment [17]. However, a comprehensive investigation of the impact of land supply on real estate investment in all prefecture-level cities has not been conducted.…”

“…In this phase, the central state reversed its restrictive land supply policies to pursue pro-growth policies, and to cope with the 2008 financial crisis [15,17]. Along with the four trillion RMB stimulus package from the central state and a series of monetary and fiscal measures (see references [9,10]), land supply was increased for urban construction, and land quotas were loosened so more land was released into the market [15].…”

“…This part of the analysis aims to explore the impact of land supply on real estate investment in different-tiers of prefecture-level cities in China. The econometric model adopted in this study is based on previous work on China's real estate investment [11,17,52,55,56], in which several common variables have been employed, such as per capita GDP, average commodity building price, gross floor area of commodity building being sold, interest rates, and land supply. Per capita GDP reflects the possible incentive for real estate investment.…”

“…Nonetheless, in exploring the impact of the central state land policies on land supply outcomes at the local level, much emphasis has been placed on the regional differences (e.g., coastal region vs. inland region; see [6,17], with little attention being paid to different tiers of Chinese cities.…”

“…Due to data limitations in specific types of land supply (e.g., residential, commercial, industrial, etc.) in prefecture-level cities, some studies employ total land supply as a proxy for residential land supply in studying the relationship between land supply and housing investment (e.g., [17]). To overcome data limitation, this study investigates the relationship between overall real estate investment and the total amount of land supply, at the expense of the subtleties of different land types (e.g., residential, commercial, industrial; see references [20,21]) and land leasing means (e.g., negotiation, listing, auction, tender; see references [22]).…”