The Implications and Mitigation of China's Land Finance Dependence : An Analysis of Housing Price Control Policies

Financing through the sales of land, commonly known as land finance, is a major source of revenue for local governments in China. We use a dynamic stochastic general equilibrium model to analyze the macroeconomic impacts of China's reliance on land finance. Our results indicate that excessive dependence on land finance can result in inflated housing prices. We also evaluate the efficacy of the real-estate-loan-restriction policy and the home-purchase-restriction policy implemented by the Chinese government to mitigate the overheating housing market. Our findings suggest that the latter policy is more effective in controlling housing prices. Moreover, under a housing preference shock or a land supply shock, the loan-restriction policy is more conducive to promoting economic growth as these shocks have a greater impact on the real estate market than on the general commodity market