Residential Housing Development in China: Mainly Policy Driven?

This paper exploits the determinants of residential housing investment in 35 major cities from 2000 to 2009. Based on panel data analysis, empirical results suggest that residential housing investment boom is driven by urbanization, bank loans and economic growth. It is substantiated that housing investment is determined by housing specific factors such as housing sales and land sale price. One implication with retrospect to the historical development is the asymmetric policy effect of regulations: restrictive policies are less effective on containing housing investment while supportive policies are more effective on boosting housing investment. Market failure due to government’s discretionary policy thus occurs, resulting in the inefficient allocation of capital resources between residential and industrial land markets. Whether such development pattern is sustainable to the real economy remains to be explored.