Political Cycles and the Mix of Industrial and Residential Land Leasing

This paper studies how political cycles change the mix of industrial and residential land in urban land leasing. The mixture of different types of land leasing in cities affects urban landscape, resident welfare, and economic sustainability. Using prefecture-level panel data from China and statistical regressions, this paper finds that cities lease out 3% more industrial land, as a percentage of total annual urban land leasing, when their party committee secretaries have been in office for no more than two years. In the same period, they lease out 2% less residential land. This is explained by the strategic behaviors of party committee secretaries to increase their chances of political promotion. Urban land leasing fuels local economic performance and increases the chance of city leaders’ promotion. While the economic benefits of residential land are immediate, those of industrial land cannot be reaped until two years later. This divided timeline results in more aggressive leasing of industrial land early on in party committee secretaries’ service terms, and that of residential land later on. Mayors’ service terms do not have the same effect. This political cycle distorts the temporal and spatial distributions of industrial and residential land in cities, and results in inefficient land use and unstable real estate markets.