The Impact Of Land Supply On House Price Changes And Economic Growth

Since the abolishment of welfare housing distribution system in1998, house prices have risen markedly in recent years, causing ever-increasing burden on home buyers.’High Housing Prices’ has definitely attracted individuals’attention. In order to curb the dramatic rise in price and speculative demand, the government has taken a series of tightened measures since2005, unfortunately with little success. Why could the run-up in housing price not reversed in our country? Why dose government regulations failure happen? What are the determining factors with regard to the long-term trend of housing price during the economic growth process? From the supply perspective, this paper will analyze the above issues.This paper consists of six chapters. The first, second and sixth are the introduction, the literature review and the conclusion part respectively. Theoretical analysis are in Section three and four, accompanied with the empirical study in Secion five. In terms of theoretical analysis, we formulate an OLG model with the logarithmic utility function of housing services. On one hand, we use this model to discuss the properties of the balanced growth path of the economy constant land and population. On the other hand, the impact of the growth rate of housing area per capita on the growth rates of economy and housing price is analysed through comparative statics with variable land and population. The theoretical analysis can be divided into two parts. In the first part, the impact of the growth rate of housing area per capita on the economic growth path in the short term is studied in the Neo-Classical model with Cobb-Douglas production function. In the second part, the effect of the variation of housing area per capita on the economic growth and real estate price variation in the long term is analyzed, using the Arrow-Romer production function with endogenous growth mechanism. The main conclusion of this paper is that economic growth and housing price variation are connected to the total effect of growth rates of land supply and population, and directly related to the effect generated by the growth rate of housing area per capita. The rise in the growth rate of housing area per capita will enhance economic growth rate and reduce housing price growth rate. Based on the results of the theoretical analysis, an empirical study using2004-2011panel data of31provinces or municipalities of China shows that the coefficient of the growth rate of real per capita GDP and that of housing construction area per capita is remarkably positive, while the coefficient of the growth rate of real housing sale price and that of housing construction area per capita is remarkably negative. The result og empirical study are fully consistent with those of theoretical analysis.