Land supply, pricing and local governments' land hoarding in China

• Published in: Regional science and urban economics 2014-09, Vol.48, p.180-189
• Main Authors: Du, Jinfeng, Peiser, Richard B.
• Format: Article
• Language: English
• Subjects: China; Correlation analysis; Land finance dependence; Land hoarding; Land prices; Land pricing; Land reform; Land speculation; Local government; Pollution control; Price systems; Property values; Real estate; Speculation; Studies; Sustainable development
• ISSN: 0166-0462; 1879-2308
• DOI: 10.1016/j.regsciurbeco.2014.07.002

China's land reform has successfully taken advantage of land sales to generate revenue. However, with land prices soaring, land has become a secure and profitable asset, which in turn has triggered land speculation. The ensuing bubble is detrimental to sustainable development. This paper examines the impact of China's land pricing system on land hoarding by local governments, who acquire and hold land as one form of China's land speculation. We first review the mechanism of land speculation; next, we analyze the institutional root of land hoarding by local governments in China; last, we investigate empirically the relationship between the magnitude of local governments' land hoarding and the land pricing system based on provincial level data from 1995 to 2010. The results indicate that land price is positive and significantly correlated with the magnitude of land hoarding by local governments. Their land hoarding behaviors have adapted to the progress of land reform and to changes in land market conditions. The instrumental variables (IV) estimation accounting for the possible endogeneity of land price generates more significant and pronounced effects than non-IV estimation. According to IV estimation, one yuan per square meter increase of land price could trigger local governments to hoard 40.8ha more land annually and 163.1ha more land cumulatively over the period 1995 to 2010; while according to non-IV estimation, the magnitude is 0.3 and 3.8ha, respectively. •This paper indicates that China's land pricing system has engendered land hoarding.•Governmental capture of land value appreciation is not a panacea for speculation.•Governmental land hoarding has adapted to changes in land market conditions.•More intense administrative intervention in the land market leads to more land holding.•More reliance on land revenue pressures governments to convert more hoarded land into cash.