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Increasing Returns, Land Use Controls and Housing Prices

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  • Dingsheng Zhang
  • Wenli Cheng
  • Yew-Kwang Ng

Abstract

The Chinese government has been active in trying to cool the alleged bubbles in its housing markets, especially in urban areas. This paper argues that the high housing prices are at least partly caused by some real factors, including the policy of restricting land uses, in particular the maintenance of a minimum overall agricultural acreage. A simple model of three sectors (housing, agriculture, and others) is constructed to examine the effects of the artificial constraint. The role of increasing returns in the non-agricultural sectors in exacerbating the policy biases is also examined. The model is then calibrated to estimate the effects of land use control policy on housing prices in China.

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File URL: http://www.buseco.monash.edu.au/eco/research/papers/2012/1412increasingreturnszhangchengng.pdf
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Bibliographic Info

Paper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number 12-14.

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Length: 21 pages
Date of creation: Mar 2012
Date of revision:
Handle: RePEc:mos:moswps:2012-14

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Keywords: increasing returns; land use controls in China; housing prices in China;

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References

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  1. Edward L. Glaeser & Joseph Gyourko & Raven E. Saks, 2006. "Urban growth and housing supply," Journal of Economic Geography, Oxford University Press, vol. 6(1), pages 71-89, January.
  2. Yang, Xiaokai & Heijdra, Ben J, 1993. "Monopolistic Competition and Optimum Product Diversity: Comment," American Economic Review, American Economic Association, vol. 83(1), pages 295-301, March.
  3. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  4. Ihlanfeldt, Keith R., 2007. "The effect of land use regulation on housing and land prices," Journal of Urban Economics, Elsevier, vol. 61(3), pages 420-435, May.
  5. Bernard Fingleton, 2003. "Increasing returns: evidence from local wage rates in Great Britain," Oxford Economic Papers, Oxford University Press, vol. 55(4), pages 716-739, October.
  6. Werner Antweiler & Daniel Trefler, 2002. "Increasing Returns and All That: A View from Trade," American Economic Review, American Economic Association, vol. 92(1), pages 93-119, March.
  7. Yew-Kwang Ng & Dingsheng Zhang, 2007. "Average-cost Pricing, Increasing Returns, and Optimal Output: Comparing Home and Market Production," Journal of Economics, Springer, vol. 90(2), pages 167-192, March.
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