Land Supply and House Prices in China

Most microeconomic models consider that expanding the land supply would enlarge the housing stock, reducing the pressure on house prices to increase. Using 234 prefecture-level city data from 2011 to 2020 in China, we find land supply is positive with house prices, suggesting this widely used conclusion is invalid in China. Besides, the positive relation between house prices and land supply is more pronounced in the higher house price area. We consider local governments utilize the relevant land revenue to attract industries and build infrastructure, resulting in a positive externality of increased land supply and a rise in housing prices.

Automated summary

In China, the positive correlation between land supply and house prices challenges the common belief that expanding land supply would alleviate the pressure on house prices. Especially in high-priced areas, the relationship between house prices and land supply becomes more significant. This is because local governments use land revenue to attract industries and develop infrastructure, resulting in a positive externality of increased land supply and rising housing prices.