Land Finance Impact On Housing Prices Under The Background Of Tax-Share Reform

In 1998, China carried out reform of real estate system, housing allocation system gradually transformed from the original welfare-based distribution system to the market-based allocation system. Since then China’s urban housing prices continued to rise, and many scholars began to study housing price, but the existing studies of housing prices are most based on the analysis of fundamental factors, they ignored the important institutional factor which was the tax-share reform starting from 1994. Some scholars think that tax-share reform brought local government mismatch of financial authorities and powers, and followed by a huge financial gap in local governments which should be made up by taking tnhe polices of land finance. Some scholars also think that local governments’ land finance policy led to a rapid rise of housing prices. For these reasons, this paper will put the tax-share reform, land finance and housing prices into the same framework, and have a depth discussion on how land finance makes impact on housing pricings under the existing tax system, then make some effective policy recommendations to control the excessive growth of housing prices.Firstly, this paper summarized the potential factors of affecting housing prices, the history of tax-share reform,the relationship between tax-share reform and land finance and the relationship between land finance and housing prices based on the research of domestic and foreign literature, which put a foundation for the theoretical mechanism analysis and empirical analysis.Secondly, this paper analyzed nation-related data and summarized the conclusions of former scholars, and then it proposed two hypotheses. The first is that tax-share reform promoted local governments to take land finance policy. The second is that land finance brought the rising of housing prices under the tax-share reform. But land finance affecting on the housing pricing may have a constraint of region. Different regions may have different influence.Thirdly, this paper built land finance equation and housing prices equation, and then it selected the panel data of 30 provinces from 2000 to 2012 to verify the former two hypotheses, the results showed that tax-share reform expanded the scale of land finance and land finance promoted the rise of housing prices which was strengthened under the background of tax-share reform, and also the degree of influence is different in different regions, which is the largest in the eastern regions and the smallest in the western regions.Finally, this paper got some interesting policy implications: conducting a reasonable division of property right and powers of the central government and local government, improving local tax system to get a stable source of local government revenue, building a diversified officials’ performance evaluation mechanism, specifying regulatory of land acquisition and land premiums, strengthening market supervision on land, reforming housing market and tax system simultaneously.