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.

First, let’s see what have

happened in China…

URBAN RESIDENTS VS. URBAN RESIDENTS WITH

URBAN RESIDENTIAL REGISTRATION

BEIJING, 2014

2013

SHANGHAI

PUDONG

1990

SHENZHEN

1980

2013

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

“GHOST TOWNS”

Why did these happen?

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...

Central 46.60%

Local 53.40%

Tax revenues in 2013 (totaling RMB12.9 trillion)

Central 14.60%

Local 85.40%

Revenue expenditures in 2013

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

Thank You!