The impact of land policy on the relation between housing and land prices: Evidence from China

This paper reviews the evolution of Chinese land policy over the past two decades and examines its impact on the dynamic relationship between housing and land prices in the Chinese real estate market. Using panel datasets from Beijing, Shanghai, Tianjin, and Chongqing, we find that there exists a long-run equilibrium between Chinese urban housing and land markets. At the same time, there is unidirectional Granger causality between housing and land prices in the short run: housing prices are Granger caused by land prices, while the reverse does not hold. We also show that urban housing markets are more informationally efficient than urban land markets. Moreover, the housing and land markets are less efficient since the adoption of a new land granting system in China in 2004, as both markets respond to market disequilibria more slowly than before.