Land Policy, Municipal Finance, and Urban Housing Problems in China - Zhi Liu

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

PROBLEMS
Urban housing prices Housing vacancy rate
Local debts
Social 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...

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 by
Central 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
2
Not allowed to
borrow directly
1 Land concessions
2
Borrow through urban
financing platform
3
Boost real estate and
other businesses
constraints solutions

GDPGrowthTargetSetbyCentralGovernment
CityGovernment
Urban finance
platform
Land development
Infrastructure
Industrial land
Commercial 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 - 9587
R² = 0.3908
y = 0.0351x - 234.33
R² = 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
LandPirce(RMB/sqm)
Per Capita Disposible Income (RMB)
Residential Land Price
Industrial Land Price

985
1,189
1,510
1,830
2,357
2,865
3,260
4,061
5,255
6,108
542 641 588
808
1,222
1,026
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
Amount(billionRMB)
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 + 5026.1
R² = 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
NewHousingUnitPrice(RMB/sqm)
Residential Land Price ( RMB/sq. m)

498 634 779
1015
1316
1591
1942
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
RealEstateInvestment(BillionRMB)
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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