Wandering in the gray: The pricing of housing restricted by land use regulation in Beijing, China. (April 2022)

• Record Type: Journal Article
• Authors: Li, Ling; Xia, Fangzhou
• Is Part Of: Land use policy. Volume 115(2022)
• Publication Date: 2022-04
• Subjects: Informality -- Affordability -- Housing price -- Land-use regulation; Land use -- Periodicals; Land use -- Government policy -- Periodicals; Sol, Utilisation du -- Périodiques; Sol, Utilisation du -- Politique gouvernementale -- Périodiques; Electronic journals; 333.7305
• DOI: 10.1016/j.landusepol.2022.106045
• Languages: English
• ISSNs: 0264-8377

Abstract

Abstract: Many informalities exist in the provision of affordable housing in transitional economies such as China. China's diverse profile of informal housing demands a broader definition of informality that includes both the absence/presence and degree of property rights. In this study, we investigate the distinct phenomenon of residential housing built on commercial use land, termed commercial land (CL) housing. CL housing is characterized by incomplete property rights because it violates regulated land uses, which is further exacerbated by policies aimed at enforcing the land use regulation. The changes in the degree of property rights of CL housing provide a natural experiment to improve understanding of the dynamics of the informal housing market in China. Drawing on a large database of housing transactions in the city of Beijing, our results suggest that on average, CL housing is priced 30% lower than formal commodity housing, increasing to over 60% in situations with a lower level of property rights. The loss in value of CL housing due to government regulation amounts to 11, 483 RMB (equivalent to US $1771) per square meter. We also find evidence that CL housing facilitates investment, which may have declined as a result of the regulated CL market. Overall, our findings are of theoretical and empirical significance for understanding informal housing development in China, involving complex and dynamic property rights and requiring government regulation to address housing informality. Highlights: A distinct phenomenon of informal housing in China is examined based on property rights. Housing built on commercial use land has incomplete property rights because of violating the regulated land use. This stimulates lower prices compared to formal commodity housing. Enforcing the land use regulation enlarges the price discount of housing built on commercial use land by over 60%. With housing built on commercial use land being regulated, the formal commodity housing market experiences price decline.