Sustainable Land-Use Policy: Land Price Circuit Breaker

Rising residential land prices push up housing prices and worsen credit misallocation. These patterns emerge amid cyclical real estate fluctuations and heavy land-based public finance. Such pressures undermine macroeconomic stability and sustainable land-use. The land price circuit breaker is widely applied with a price cap and state dependence, yet its trigger mechanism and interaction with inflation targeting remain underexplored. This study addresses three core questions. First, how does the circuit breaker’s discrete trigger and rule-switching logic differ from traditional static price ceilings? Second, can the mechanism, via the collateral channel, restrain excessive land price hikes, improve credit allocation, and, thereby, stabilize land price dynamics and long-run macroeconomic performance? Third, how does the circuit breaker interact with inflation targeting, and through which endogenous channels does a strict target dampen housing prices and raise activation probability? This study develops a multi-sector DSGE model with an embedded land price circuit breaker. The price cap is modeled as an occasionally binding constraint. A dynamic price band and trigger indicator capture the policy’s switch between slack and binding states. The framework incorporates interactions among local governments, the central bank, developers, and households. It also links firms and the secondary housing market. Under different inflation-targeting rules, this study uses impulse responses, an event study, and welfare analysis to assess trigger conditions and macroeconomic effects. The findings are threefold. First, a strict inflation target increases the probability of a circuit breaker being triggered. It channels housing-demand shocks toward land prices and creates a “nominal anchor–relative price constraint” linkage. Second, once activated, the circuit breaker narrows the gap between land price and house-price growth. It weakens the procyclicality of collateral values. It also restrains credit expansion by impatient households. These effects redirect credit toward firms, improve corporate financing, reduce the decline in investment, and accelerate output recovery. Third, the circuit breaker limits new land supply and shifts demand toward the secondary housing market. This generates a supply-side effect that releases existing stock and stabilizes prices, thereby weakening the amplification mechanism of housing cycles. This study identifies the endogenous trigger logic and cross-market transmission of the land price circuit breaker under a strict inflation target. It shows that the mechanism is not merely a price-management tool in the land market but a systemic policy variable that links the real estate, finance, and fiscal sectors. By dampening real estate procyclicality, improving credit allocation, and stabilizing macroeconomic fluctuations, the mechanism offers new insights for sustainable land-use policy and macroeconomic stabilization.