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LAND POLICY, MUNICIPAL
FINANCE, AND URBAN HOUSING
PROBLEMS
IN CHINA
Zhi Liu
Lincoln Institute of Land Policy
And
Peking University
Annual World Bank Conference on Land and Poverty
March 25, 2015, Washington D.C.
PROBLEMS
Urban housing prices Housing vacancy rate
Local debtsSocial tension
Inefficient and Wasteful land use
But a number of economic and social
problems have also emerged…
CHINA NATIONAL HOUSING PRICE INDEX,
2000-2011
100.00%
120.00%
140.00%
160.00%
180.00%
200.00%
220.00%
240.00%
260.00%
280.00%
300.00%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
价格指数 真实价格指数
1978
1994
1998
2004
Economics reform initiated
2008
2013
Tax sharing system established;Automobile manufacturing sector as one of the pillars of national economy
Housing reform: moving to the market provision of housing
Real estate sector as one of the pillars of national economy
4 trillion RMB stimulus package
The 3rd Plenum of 18th CPC Central Committee Conference
NATIONAL GDP GROWTH TARGET IS PRACTICALLY ACHIEVED BY
ALL LEVELS OF LOCAL GOVERNMENTS TRYING TO ACHIEVE THE
SAME TARGET...
GDP Growth Target Set byCentral Government
Local
Government
Employment
Attracting FDI and other investment
Public infrastructure
investment
Real Estate Development
Local Tax Revenues
City governments respond to incentives under policy
constraints…
1 No tax power
2Not allowed to
borrow directly
1 Land concessions
2Borrow through urban
financing platform
3Boost real estate and
other businesses
constraints solutions
GD
P G
row
th T
arg
et S
et b
y C
entra
l Gove
rnm
ent
City G
ove
rnm
entUrban finance
platform
Land development
Infrastructure
Industrial landCommercial and residential land
Attracting FDI and other investment
Real estate
Employment Local tax revenues
Urban population
growth
INDUSTRIAL LAND PRICES ARE WAY BELOW
RESIDENTIAL LAND PRICES…
y = 0.5856x - 9587R² = 0.3908
y = 0.0351x - 234.33R² = 0.3026
-5,000
-
5,000
10,000
15,000
20,000
25,000
30,000
10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000
Lan
d P
irce (
RM
B/s
q m
)
Per Capita Disposible Income (RMB)
Residential Land Price
Industrial Land Price
9851,189
1,5101,830
2,357
2,865
3,260
4,061
5,255
6,108
542 641 588808
1,2221,026
1,718
2,747
3,213
2,690
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Local Fiscal Revenues
Land Concession Revenues
Am
ount (b
illion R
MB
)
Year
Revenues from Land Concessions
23.0%
15.9%
7.1%24.8%
14.2%
15.0%
2013
Infrastructure Industrial Commercial
Public and Administrative Affordable housing Commodity housing
Very limited amount of urban land supply is for
residential: the case of Beijing…
NEW HOME PRICES ARE POSITIVELY CORRELATED
WITH RESIDENTIAL LAND PRICES…
y = 0.7485x + 5026.1R² = 0.7874
-
5,000
10,000
15,000
20,000
25,000
30,000
- 5,000 10,000 15,000 20,000 25,000 30,000 35,000
New
Ho
usin
g U
nit
Pri
ce (
RM
B/s
q m
)
Residential Land Price ( RMB/sq. m)
498 634779
10151316
15911942
2529
3120
3624
4827
6174
0
1000
2000
3000
4000
5000
6000
7000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Real E
sta
te In
vestm
ent (B
illion R
MB
)
Year
Real estate investment continues to be strong
despite high prices…
WHY HOUSING DEMAND REMAINS HIGH?
Housing supply increases with high sales prices
But why demand remains high when prices are so high?
Households purchase houses as a way of investment
Urban household saving rate remains high at about 25-30%
Inflation has been high over the last few years, and liquidity is plenty
Interest rates of savings accounts are low due to lack of competition in the banking sector
Stock market is under-developed and poorly regulated, and has been running down for 6 years
Demand ahead of time due to “mother-in-law factor” (Wei and Zhang, 2012)
NEW REFORM DIRECTIONS ANNOUNCED BY THE CPC
18TH CENTRAL COMMITTEE’S THIRD PLENARY SESSION
ON NOV. 12, 2013
Hukou: (gradually) relax controls on farmers settling in cities and towns
Land: form a construction-land market that unifies urban and rural areas, and allow the sales, leasing an demutualization of rural, collectively owned buildable land under the premise that it conforms to planning
Taxation: raise share of direct taxation, improve local tax base (property tax and consumption tax), and accelerate property tax legislation
Financial market: accelerate interest rate liberalization
Role of government: shift to service-type government, and form a comprehensive assessment system for officials’ performance to rectify the one that over-emphasizes GDP growth
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