Study Of Housing Prices And Land Price Differences Between Cities And Their Determinants

The urban house market and land market in China have been derived from house and land system reforming, which have been developing in the era of economic transition. The characteristics of the house market and land market are very different to the other countries', which make them outstanding. With the real estate industry prospering, there are three key problems in theoretical research and practical development, how to explain the relationship between the house market and land market, how to explain the relationship between the house prices and land prices, how to explain the inter-metropolitan dramatic variation in house prices and land prices.This research attempts to explain the inter-metropolitan variation in house prices and land prices, examines the impacts of the current micro-intervention policy in land market, and then puts forward some proposals. In the analysis frame about house market and land market, this research has set up a simultaneous equation model of urban house prices and land prices in China. Collecting 35 major metropolitans database from 2003 to 2005 and using two stages least squares method, this research analyzes the endogenous and exogenous determinants which have caused the inter-metropolitan variation in the house prices and land prices in China. In addition, this research also tests the effect of land policy using a database of 146 residential land transactions in Hangzhou from 1999 to 2005. Then some suggestions are proposed according to the deferent house market and land market in China.With comprehensively theoretical and empirical analysis, this research obtains main conclusions as follows:(1) The house market and land market are closed interrelated property markets. The overall metropolitan real estate market is consisted of two interrelated submarkets, house market and land market. The house prices and land prices should be put in a complete real estate market system to be considered. So, it is not appropriate to separate one price from the other. The empirical results reveal that land prices have affected the relationship of the demand and supply in house market, and then change the house equilibrium prices in a long term. But in the land market, the house prices also have influenced the relationship of the demand and supply, and then change the land equilibrium prices. With the interaction between house prices and land prices, the urban house market and land market have already become the close-linkage property markets.(2) The house prices and land prices are simultaneous determined in the markets. The empirical results offer evidence that house prices and land prices are endogenous variables which interact remarkably. In the house market, if the land prices change one unit, the house prices would change 0.761 units correspondingly. In the land market, if the house prices changes one unit, the land prices would change 0.272 units too. The empirical results provide strong support that the house prices and land prices are the endogenous determinants which have caused inter-metropolitan variation. So, regulating policy should not be limited in the house market or land market. The two prices should be put in a system to consider the regulation.(3) The inter-metropolitan variation in house prices and land prices has been caused by exogenous and endogenous determinants together. With the house prices and land prices interacting, the empirical results indicate that, population level, wealth level, construction costs and crime rate are the four important exogenous determinants in explaining the inter-metropolitan variation in house prices. In a long time, the wealth and population are still the most important factors which promote the demand in house market. Then the house prices would be raised. The construction costs have negative influence on the house supply; and the crime rate has the negative effect on the house demand. In the land market, house prices' prospect, air quality, marketization-degree of land system and land resource quantity are the important determinants to explain the inter-metropolitan variation in land prices. The house prices' prospect will remarkably affect the developers' demand in the land market. The market-degree has impacts on land prices in the market. If there is less land transitions though negotiation, the land prices will be higher.In summary, with the endogenous variables influencing, there are four significant exogenous determinants, population level, wealth level, construction costs and crime rate, in explaining the inter-metropolitan variation in house prices. But house prices' prospects, air quality, marketization-degree of land system and land resource quantity are the four important factors in explaining the inter-metropolitan variation in land prices. The endogenous and exogenous determinants have caused the variation in prices together.(4) The micro-intervention policy in land market has affected land prices significantly. The building permit policy may lead to price distortions in the land market. If the floor-area rate is higher, the land prices will be higher. The parcel area of land which government can control may also affect land sales prices. The building permit policy in the market can remarkably change the sales prices, and then cause prices distortion in land market. Through regulation policy in land market, the government may get its willingness into reality. In a long time, the governments' tendency of the permit policy can change the developers' demand in land market.(5) The intervention policy should be systematic and differential according to the urban market. Since it is the fact that house prices and land prices vary in metropolitans, this research puts forward two aspects of proposals.First, the new real estate value capture mechanisms in metropolitans should be established. The house market and land market in metropolitans are in different stage in the marketization procession. The house market and land market are fuH-blown in some metropolitans, for example, Shanghai, Hangzhou and Nanjing in the Yangtze Delta and Guangzhou and Shenzhen in the Zhujiang Delta. The house prices and land prices in these metropolitans are much higher than others. This research suggests that new real estate value capture mechanisms should be established in these metropolitans, according to the experiences of Singapore and Hong Kong. If there are good real estate value capture mechanisms, the surplus value of real estate can get by the government, and then be allocated justly to public services which can depress the unreasonable raise in house prices and land prices in some metropolitans.Second, the new residential land market should be inaugurated in some areas. With the land market more mature, the disequilibrium between supply and demand in residential land market will be more serious. The new residential land market should be set up in the Yangtze delta, Zhujiang delta and Beijing area, according to the stage of the house market and land market. In other words, the government should allow the rural collective construction land participating the urban house market. And so the monopolization in urban residential land supply would be taken off. It would be strategic decision-making to inaugurate the new residential land market in some area.Compared with the past researches, the values and innovations of this research are mainly manifested in three aspects:(1) Construct and estimate the simultaneous equations for the urban house prices and land prices in China. Compared with the past researches which only paid attention to house prices or land prices, this research set up an interrelated theoretical model between house market and land market, in which the inter-metropolitan variation in house prices and land prices can be analyzed comprehensively. The metropolitans' data in China has been collected, so the simultaneous equations can be estimated using two stages least squares method.(2) Solve the endogenous problem in estimating the equations of house prices and land prices. In view of the argument about the relationship between house prices and land prices in China, I think that the house prices and land prices are simultaneous determined in the markets. So, the endogenous variables should be identified specially. Using two stages least squares method, this research has set instrumental variables to overcome the endogenous problem. Therefore the coefficients of the endogenous and exogenous variables are accurately estimated.(3) Estimate the impacts of micro-intervention policy on the land sales prices. If the constraint on the sale land is loose, the land price will go up. If the constraint is stringent, the land price will get down. So, the sales prices are the function of the micro-intervention policy with other conditions similar. Using a database of 146 residential land transactions from 1999 to 2005 in Hangzhou, this research examines the impacts of the micro-intervention policy. The empirical results indicate that 1% increases in floor-area ratio will lead to 0.611% increase in sales price. And 1% increase in area will lead to 0.138% decrease in land prices. The micro-intervention policy has great impacts on the sales prices in residential land market.