Research On The Effects Of Local Governments’ Land Leasing Behaviors On The Land And Housing Markets In Chinese Cities

In the Chinese particular system of land supply, local governments are themonopolists in urban land markets. Against this background, income from landsales is becoming one of the most important sources of local fiscal revenue. Inrecent years, housing price and residential land price have been increasingrapidly in many cities. This can partly be ascribed to local governments’ landsupply. It is in this context that this dissertation focuses on the land sale oflocal governments, and conducts theoretical and empirical studies to investigatethe interactive mechanism between land sale, infrastructure investment andhousing price. Then, this dissertation discusses the urban developmentfinancing and investment cycle derived from this interactive mechanism and itspolitical implications.The interactive mechanism between land sales, infrastructure investmentand housing price refers to that local governments choose to invest a large portionof their revenues from land sales in urban infrastructure development. On the onehand, this will improve the marketing environment in order to attractinvestment and promote the economic growth. On the other hand, it helps toincrease amenities and boosts housing and land prices, and thus guarantees moreincome from land sales in the future. Firstly, this dissertation provides evidence of theinteractive mechanism in the housing sector using data from35Chinese majorcities, and makes an exploration on partial equilibrium modeling to discuss theland supply of local governments in different periods.Furthermore, this dissertation constructs a general equilibrium staticmodel including housing and industrial sectors to investigate localgovernments’ residential and industrial land supply, considering theirobjectives of maximizing economic growth and fiscal revenue. The results oftheoretical modeling indicate that a city’s land-use structure is determined bythe objective preference of local governments. The proportion of industrial landwill be larger in cities where the local governments prioritize economic growthover fiscal revenue, and in these cities, with other conditions given, the residential land price is higher. With the panel data of35Chinese major cities,the dissertation conducts empirical studies, and empirical results support theabove-mentioned propositions and show that there are differences inquantitative effects for the35cities.Finally, some policy suggestions can follow from the findings of thisdissertation. Firstly, given the current central-local fiscal arrangement and thelack of effective financial cycle of infrastructure development, it should berealized that local governments’ land supply contributed greatly to the urbaninfrastructure development and economic growth. Secondly, in such an urbandevelopment financing and investment cycle, the irrational expectations might giverise to bubbles in housing price and risks in infrastructure financing during theboom period of real estate market. Thirdly, in the long-term, the key to solve allthese problems is to perfect the current fiscal system and other related ones, andto explore more sustainable urban development patterns.