1. L AND P OLICY, M UNICIPAL F INANCE, AND U RBAN H OUSING P ROBLEMS IN C HINA Zhi Liu Lincoln Institute of Land Policy And Peking University Annual World Bank Conference on Land and Poverty March 25, 2015, Washington D.C.

2. First, let’s see what have happened in China…

3. U RBAN RESIDENTS VS. URBAN RESIDENTS WITH U RBAN RESIDENTIAL REGISTRATION

4. B EIJING, 2014

5. 2013 S HANGHAI P UDONG 1990

6. S HENZHEN 1980 2013

7. PROBLEMS Urban housing prices Housing vacancy rate Local debts Social tension Inefficient and Wasteful land use But a number of economic and social problems have also emerged…

8. C HINA NATIONAL HOUSING PRICE INDEX, 2000-2011

9. “G HOST T OWNS ”

10. Why did these happen?

11. 1978 1994 1998 2004 Economics reform initiated2008 2013 Tax sharing system established; Automobile manufacturing sector as one of the pillars of national economy Housing reform: moving to the market provision of housing Real estate sector as one of the pillars of national economy 4 trillion RMB stimulus package The 3rd Plenum of 18th CPC Central Committee Conference

12. N ATIONAL GDP GROWTH TARGET IS PRACTICALLY ACHIEVED BY ALL LEVELS OF LOCAL GOVERNMENTS TRYING TO ACHIEVE THE SAME TARGET...

15. GDP Growth Target Set by Central Government Local Government Employment Attracting FDI and other investment Public infrastructure investment Real Estate Development Local Tax Revenues

16. City governments respond to incentives under policy constraints… 1 No tax power 2 Not allowed to borrow directly 1 Land concessions 2 Borrow through urban financing platform 3 Boost real estate and other businesses constraints solutions

17. GDP Growth Target Set by Central Government City Government Urban finance platform Land development Infrastructure Industrial land Commercial and residential land Attracting FDI and other investment Real estate Employment Local tax revenues Local tax revenues Urban population growth

18. I NDUSTRIAL LAND PRICES ARE WAY BELOW RESIDENTIAL LAND PRICES …

20. Very limited amount of urban land supply is for residential: the case of Beijing…

21. N EW HOME PRICES ARE POSITIVELY CORRELATED WITH RESIDENTIAL LAND PRICES …

22. Real estate investment continues to be strong despite high prices…

23. W HY HOUSING DEMAND REMAINS HIGH ? Housing supply increases with high sales prices But why demand remains high when prices are so high? Households purchase houses as a way of investment Urban household saving rate remains high at about 25- 30% Inflation has been high over the last few years, and liquidity is plenty Interest rates of savings accounts are low due to lack of competition in the banking sector Stock market is under-developed and poorly regulated, and has been running down for 6 years Demand ahead of time due to “mother-in-law factor” (Wei and Zhang, 2012)

24. N EW REFORM DIRECTIONS ANNOUNCED BY THE CPC 18 TH C ENTRAL C OMMITTEE ’ S T HIRD P LENARY S ESSION ON N OV. 12, 2013 Hukou: (gradually) relax controls on farmers settling in cities and towns Land: form a construction-land market that unifies urban and rural areas, and allow the sales, leasing an demutualization of rural, collectively owned buildable land under the premise that it conforms to planning Taxation: raise share of direct taxation, improve local tax base (property tax and consumption tax), and accelerate property tax legislation Financial market: accelerate interest rate liberalization Role of government: shift to service-type government, and form a comprehensive assessment system for officials’ performance to rectify the one that over- emphasizes GDP growth

25. Thank You!