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Increasing Returns, Land Use Controls and Housing Prices

  • Dingsheng Zhang
  • Wenli Cheng
  • Yew-Kwang Ng

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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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
Contact details of provider: Postal: Department of Economics, Monash University, Victoria 3800, Australia
Phone: +61-3-9905-2493
Fax: +61-3-9905-5476
Web page: http://www.buseco.monash.edu.au/eco/Email:


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  1. 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.
  2. 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.
  3. Edward L. Glaeser & Joseph Gyourko & Raven E. Saks, 2005. "Urban Growth and Housing Supply," Harvard Institute of Economic Research Working Papers 2062, Harvard - Institute of Economic Research.
  4. 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.
  5. 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.
  6. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  7. 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.
  8. Richard Adelstein, 2005. "Knowledge and Power in the Mechanical Firm: Planning for Profit in Austrian Perpsective," The Review of Austrian Economics, Springer, vol. 18(1), pages 55-82, January.
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