Growth-driven shantytown redevelopment and housing market dynamics in the low-tier cities of China

Hangtian Xu and Wenzhuo Zheng

MPRA Paper from University Library of Munich, Germany

Abstract: We analyze the housing market consequences of a large-scale government-led urban redevelopment program in China that relies on a specialized financial instrument. With a special loan support from the central bank, local governments of low-tier cities purchased a huge number of sub-standard dwellings in their urban areas between 2015 and 2019, accounting for approximately 3.3% of the country's urban housing stock, and then carried out demolition. Resale revenue from the reassembled land is expected to repay the loan. Families whose shantytown homes were collected got generous cash resettlement. The proportion of urban households receiving cash resettlement varies by city. Dealing with the self-selection problem of this policy intensity based on an instrumental variable approach, we find that in cities with a higher proportion of urban households receiving this windfall, housing and residential land prices have fallen relatively despite an increasing demand, while housing oversupply has deteriorated. This is partly caused by the program-induced changes in beliefs, leading to speculative housing demand and, in turn, an exaggerated supply-side response from the government. The latter, seemingly myopic, was prompted by the growth motive of local governments, as the implementation of the program was growth-driven, in addition to welfare-improving oriented.

Keywords: urban redevelopment; belief; housing supply; low-tier cities (search for similar items in EconPapers)
JEL-codes: R23 R31 (search for similar items in EconPapers)
Date: 2024-12-01
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