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To build above the limit? Implementation of land use regulations in urban China

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  • Cai, Hongbin
  • Wang, Zhi
  • Zhang, Qinghua

Abstract

This paper studies the implementation of land use regulations in urban China. In particular, we investigate land developers’ compliance with floor-to-area ratio (FAR) regulations using a unique set of residential land parcel data from 30 major Chinese cities matched with the corresponding residential development projects built on those parcels. In our sample, in more than 20% of the cases, developers built above the regulatory FAR limits in the ex post land development, and the total floor area built in those cases increased 21.5% over the regulatory limit. Our analysis finds that attractive land location attributes tend to induce developers to pursue upward adjustments of FAR. Moreover, developers who are more likely to have special relationships with government officials tend to make larger upward adjustments. Our estimates suggest that there exists a significant gap between the privately optimal FAR that maximizes land value and the regulatory FAR. This gap is only modestly reduced by corrupt ties with government officials, implying that FAR regulations have imposed a highly restrictive constraint on China's urban land development even given imperfect compliance.

Suggested Citation

  • Cai, Hongbin & Wang, Zhi & Zhang, Qinghua, 2017. "To build above the limit? Implementation of land use regulations in urban China," Journal of Urban Economics, Elsevier, vol. 98(C), pages 223-233.
  • Handle: RePEc:eee:juecon:v:98:y:2017:i:c:p:223-233
    DOI: 10.1016/j.jue.2016.03.003
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    2. Hanming Fang & Jing Wu & Rongjie Zhang & Li-An Zhou, 2022. "Anti-Corruption Campaign and the Resurgence of the SOEs in China:Evidence from the Real Estate Sector," PIER Working Paper Archive 22-020, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    3. Han, Wenjing & Zhang, Xiaoling & Zheng, Xian, 2020. "Land use regulation and urban land value: Evidence from China," Land Use Policy, Elsevier, vol. 92(C).
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    5. Long Wang & Yang Yang, 2021. "Political connections in the land market: Evidence from China's state‐owned enterprises," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 49(1), pages 7-35, March.
    6. Dan Ben-Moshe & David Genesove, 2022. "Regulation and Frontier Housing Supply," Papers 2208.01969, arXiv.org, revised Sep 2022.
    7. Zhao, Renjie & Chen, Jie & Feng, Chen & Zhong, Shihu, 2020. "The impact of anti-corruption measures on land supply and the associated implications: The case of China," Land Use Policy, Elsevier, vol. 95(C).
    8. Sun, Ang & Zhang, Qinghua, 2020. "Who marries whom in a surging housing market?☆," Journal of Development Economics, Elsevier, vol. 146(C).
    9. Lu, Shenghua & Wang, Hui, 2023. "How revolving-door recruitment makes firms stand out in land market: Evidence from China," China Economic Review, Elsevier, vol. 78(C).
    10. Fei, Xuan, 2020. "The misallocation in the Chinese land market," BOFIT Discussion Papers 23/2020, Bank of Finland Institute for Emerging Economies (BOFIT).
    11. Niu, Dongxiao & Sun, Weizeng & Zheng, Siqi, 2021. "The role of informal housing in lowering China’s urbanization costs," Regional Science and Urban Economics, Elsevier, vol. 91(C).
    12. Hirte, Georg & Min, Hyuk-Ki & Rhee, Hyok-Joo, 2022. "Regulation versus taxation: Efficiency of zoning and tax instruments as anti-congestion policies," Journal of Housing Economics, Elsevier, vol. 56(C).
    13. Fu, Shihe & Xu, Xiaocong & Zhang, Junfu, 2021. "Land conversion across cities in China," Regional Science and Urban Economics, Elsevier, vol. 87(C).
    14. Tan, Ya & Wang, Zhi & Zhang, Qinghua, 2020. "Land-use regulation and the intensive margin of housing supply," Journal of Urban Economics, Elsevier, vol. 115(C).
    15. Fei, Xuan, 2020. "The misallocation in the Chinese land market," BOFIT Discussion Papers 23/2020, Bank of Finland, Institute for Economies in Transition.
    16. Chang Liu & Wei Xiong, 2018. "China's Real Estate Market," NBER Working Papers 25297, National Bureau of Economic Research, Inc.
    17. He, Qingsong & Xu, Min & Xu, Zike & Ye, Yanmei & Shu, Xianfan & Xie, Peng & Wu, Jiayu, 2019. "Promotion incentives, infrastructure construction, and industrial landscapes in China," Land Use Policy, Elsevier, vol. 87(C).
    18. Zhi Wang & Qinghua Zhang & Li-An Zhou, 2020. "Career Incentives of City Leaders and Urban Spatial Expansion in China," The Review of Economics and Statistics, MIT Press, vol. 102(5), pages 897-911, December.
    19. Zhang, Junfu, 2023. "JUE Insight: Measuring the Stringency of Land Use Regulation Using a Shadow Price Approach," Journal of Urban Economics, Elsevier, vol. 133(C).
    20. Jan K. Brueckner & Wenhua Liu & Wei Xiao & Junfu Zhang, 2022. "Government-Directed Urban Growth, Firm Entry, and Industrial Land Prices in Chinese Cities," CESifo Working Paper Series 10181, CESifo.
    21. Wenbin Huang, 2022. "Government Land Regulations and Housing Supply Elasticity in Urban China," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 30(4), pages 122-148, July.
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    23. Deininger, Klaus W. & Ali, Daniel Ayalew & Neyter, Roman, 2023. "Impacts of a mandatory shift to decentralized online auctions on revenue from public land leases in Ukraine," Journal of Economic Behavior & Organization, Elsevier, vol. 213(C), pages 432-450.

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    More about this item

    Keywords

    Floor-to-area ratios; Land development; Compliance; Corruption; China;
    All these keywords.

    JEL classification:

    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy

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