Studies On Price Formation Mechanism Of Urban Residential Land In China

This paper studies the land market, housing market, asset markets, and theinteraction between them, which determine urban residential land price under thespecific institutional background in China. The analysis logic of the research is inaccordance with the following order: First of all, an urban land price formationframework including the residential services market, residential assert market, andresidential land use market in case of the institutional factors is constructed;moreover, the essay reveals the demonstration of the land price formation under themutual motive from the residential market and the land market in view of the factthat the land is the intermediate input of the residential market, and land demand isderived from the dwelling requirement under the overall framework; in addition, thepaper manifests the real estate assert price formation under the mutual motive fromthe residential market and the land market and phenomenon that dwelling serviceprice deviates from the asset price (asset bubble) in the virtual economicenvironment under the general skeleton; finally, the paper empathetically studies theimpact of Chinese characteristics institutional factors on urban residential land pricewhich is considered as the exogenous variable and is temporarily ignored in theanalysis before.The structure of the essay is organized as follows: the research methodologyand the basic theory preparation is elaborated in Introduction and Chapter One; theoverall framework of the price formation mechanism is presented in Chapter Two;the land price formation and the price and value deviation is investigated from thevirtual economy perspective; the institutional impacts on premium, which istemporarily ignored, is illustrated in Chapter Five; the conclusion is drawn in theend.The introduction part explains the research point, content, method, structure,innovation, and deficiencies of the paper. Chapter One embodies the fundamental theory and the literature review. Itcould be divided into three parts: the first part sorts out the equilibrium price and thenon-equilibrium price theory; the second part summarizes the land rent and pricetheory of Classical School, Marxism School, and Neoclassical School as well as theland price formation literature from the domestic scholars; the third part embracesthe definition and the explanation of the urban land, land resource, land property,land asset, land price, land value. The following deficiencies could be drawn throughsorting out the literature: the research is abundant in the part, while the study fromthe overall point of view is quite limited; the investigation in the real economy fieldis far more than in the virtual economy field; the study logic according to theeconomy is ample, but the research from the institutional perspective is far fromenough; the comprehensive study on the land price formation from the unitedperspectives of the real economy, the virtual economy, and the institution is evenless.Chapter Two embraces the urban residential land price formation mechanismframework. The overall economy frame of the urban residential land price formationis constructed by quoting the integrated residential market model of Bote Pan. Thefollowing inspiration is drawn through the analysis of the relationship between landprice and the housing price: First, it is essential to take both land market anddwelling market into account; second, the market structure could produce significanteffect on the land price formation; third, the land price is determined by both supplyand demand, so assume one factor to be invariant is a simple theoretical abstractionfrom the complicated reality; fourth, the elasticity of supply and demand could exertprofound influence on the land price formation; fifth, the integrated residentialmarket model of Bote Pan is consisted of three interrelated components, includingresidential services market, residential asset market, residential land market. Thequantitative analysis of the land price and housing price could be carried out if theappropriate function form (such as the linear function) and the compatible exogenousvariables could be adopted according to above model framework.Chapter Three incorporates the linkage between land market and housing market, and the land price formation. The linkage model of land market and housingmarket is founded, by which the comparative static analysis is made to demonstratethe effect of dwelling market on land price. The land is the key inputs of the housingconstruction, and the house is the joint outcome of the multiple inputs including theland; the land market provides land resource to the dwelling market which couldproduce demand to the land market. As a result, the urban housing market and theland market together could form an indispensible entirety which contains the naturalcontact. The quantity and price of the land and house is determined in the twomarkets simultaneously on condition that exogenous variables are invariant. Themarket relationship between the land department and housing department is typicallyvertical. If the housing price, elasticity of demand in land market and housing market,and the inputs except the land are invariant, the land price totally rests on the numberof the enterprises in the two markets, which is also called as the market structure. Ifthe inelasticity of demand in the two markets is remarkable, the plus amplitudeexcept the twice cost would be notable from the perspective of the vertical marketrelationship, which could be slender in the event that the elasticity of the demand ismarked.Chapter Four embodies the real estate virtualization and the price formation.The study starts from the real estate virtualization and the real estate asset pricing;investigates the transmission mechanism of the liquidity to the real estate prices;embraces the macro model of the associated entity of real economy, currency,interest rate, real estate prices; focuses on the research of the impact of the bankcredit on the real estate supply and demand in China; especially illustrated the causeand explanation of the real estate bubble. The causes that result in the real estatevirtuality are real estate securitization, real estate market structure developmentwhich is closely related with the financial market, and the globalization of real estateinvestment. The liquidity exerts influence on the price of real estate through the cashbalance, the interest rate, the exchange rate, the balance sheet mechanism. In themodern economy, currency is not only the media for the real economy transactions,but also could be stuck in the financial market and the real estate market. Therefore, it is necessary to study on the real estate asset price in the macro environment ofcurrency, real economy, and virtual economy. Based on such consideration, themacro model that links the real estate asset price, economic output, the amount ofmoney, and interest rate is established. The real estate development is energeticallysupported by the bank credit: On one hand, the real estate development has strongdesire for the borrow money; on the other hand, there is also the motivation for thebank to expand the real estate loans. There are mainly three reasons for the bank toexpand the credit: First, the RMB savings have been increased, so the bank funds areample; second, the local government has provided the credit support for the realestate; third, the loan is raised on the building property, so the risk is controlled tocertain extent. People purchase houses through the real estate credit rather thanothers ways to invest is mainly because of the following three reasons: First, thehousing price expectation has been rising as the economy and urbanization grows ata high speed, which leads to the wild spread phenomenon of the real estateinvestment activities and the anticipation; second, the inflation stimulates the realestate investment and the increase of the housing price; third, the narrow investmentchannel forces the residents to expand the investment in real estate. The formation ofthe bubble in Japan is the result of the interaction of many factors in the case of"excessive good expectations". The elements such as the expansion and deregulationof the financial institutions, the risk management insufficiency of some financialinstitution, the long-term easy monetary policy, the tax and the regulatory policieswhich is a contributing factor for the rise of the land price are generally believed tobe attributed to the extreme self-confidence and blind optimism, and excessivegeographical concentration of the economy, etc. have been generally regarded as thecause of the formation and expansion of the bubble. The reflection below could beobtained through rethinking the subprime crisis: First, the phenomenon that the realestate price deviates from its price would not last long as the connection between thefinancial market and real economy of the real estate remains essential; second, theself-realization of the expectation could aggravate the financial fluctuation, and evencould lead to the crisis, so the market confidence regulatory is of growing importance; third, the development of the financial derivative market is a"double-edged sword"; fourth, the international regulatory cooperation is ofincreasingly significant as the international financial market relationship are closelyrelated nowadays.Chapter Five reveals the formation of the land system and the land price. Theinvestigation in this part begins with the formation background, including thefundamental system and"land finance", successively followed by the analysis of theeffect of land property rights system, land supply system, planning, and tax on landprice. The Chinese characteristic public land ownership institution covers the landownership including the national and collective land ownership; the land usufructrights including the land contractual management right, and the right of applying theconstruction land and residence land, etc.; public land powers, including land useplanning, tax revenue, expropriation and requisition of the land, and land supply, etc.As the representative of the state-owned land ownership, the government couldmanipulate the quantity, quality, and manners of land supply under the fundamentalground system of China; as the socio-economic manager, the government couldcontrol the residential development through the land acquisition, urban planning,environment protection, supporting facilities. The government possesses the landownership and the power of supervision and the management in land market, so itsinfluence towards the real estate is unmatched by any other country. Under theexisting land system, land and its related income is an important source of the localgovernment revenue, combined with the low cost of the agriculture land acquisitionand the high average income of the land conversion from the rural to urban place,resulting in the fondness to regard land management as the core of"CityManagement"in the view of governments. The land system in force could stimulatethe municipal government to expand the remove scale. The expansion of thedemolition could not only achieve the differential rent of the excellent location, butalso acquire the passive demand to raise the price of second-hand house and thedwelling in the periphery region of city. The land leasing system leads to theseparation of the land ownership and the land use rights, which results that the real estate in China does not possess the sustainable and long-term value-added features,and the value of real estate investment reveals the decreasing trend as the term ofservice approaches its deadline. Under the market economy conditions, urbanplanning primarily exerts influence on land price through the following mechanisms:First, the city planning not only possesses the function of orientation whoseimplementation could cause the concentration and the decentralization of resourceelements and economic activities, thus contributing to the regular distribution for thevarious natures of land use and affecting the land price through the positive andnegative external effect, but also produce the effect on land price by determining theland development intensity and the floor area ratio; second, it is difficult to measurethe external influence by money, and the land value cannot be defined apart from thewhole social value standard; third, the city government and the departments incharge of construction could control and regulate the land development to affect theland price through administrative power. In addition, the city planning could alsoproduce the effect on urban land price status by means of improving regionalconditions through transportation infrastructure construction and better plantconditions by municipal basic facilities to ameliorate plant conditions to enhance theproduction efficiency and the quality of life so that the supply and demand for theurban land could be oriented. Generally speaking, the increasing of real estatedevelopment taxation may lead to the rise of the construction cost, which couldpropel the price of the real estate; on the contrary, the reduction of the real estatedevelopment tax could bring down the housing price. However, the effect producedby variation of tax volume on the real estate price depends on whether the real estatemarket is in buyer's market or the seller's market. To assess the influence on theprice of real estate exerted by real estate transferring, it is necessary to distinguishthe tax levy from the seller or the buyer.