The Impact of Public Land Leasing System on the Price Decision Mechanism in Land Market and Housing Market

Since the “reform and opening-up” policy issued in 1978, China has experienced great changes during the past three decades. Characterized by the rapid growth of GDP, the national economic development has changed from planned command economy to a decentralized market economy. As the experimental city, Shenzhen’s development not only adopted the transformation of the economic development model but also brought about the rapid urbanization process. Under this condition, the municipality faced great pressure to finance the city construction if only depended on conventional ways. Therefore, the municipality, learned from Hong Kong, introduced the public land leasing system to capture the land value and thus to finance the construction of infrastructure and public facilities. Together with a series of relevant national reforms, the primary land market and real estate market have been reformed as market-driven system in Shenzhen. Nevertheless, along with such improvement, the land price and newly-built commercial housing price have continuously been in an upward trend, which incurs great social criticism and friction. In this case, this research is both exploratory and explanatory to find out the influence of implementing public land leasing system as an important instrument of land value capture in China. In addition, it also highlighted the difference between the three market-oriented public land leasing modes. According to the context, it put forward the hypothesis that the public land leasing system would increase the land price and further the newly-built commercial housing price. Besides the verification, this paper also deeply explained the reasons and its meanings. The methodologies used in the paper are single-case study and error correction model. For the case study, Shenzhen was chosen due to its well maintained database and representative experience of implementing public land leasing system. Comparison between closing land price and standard land price was the main quantitative way to analyze how the system affects the land price in primary land market. And the statistical model was used to tell the individual influence of the three different modes of public land leasing system on the housing price variation. The date used was collected from the Shenzhen statistical yearbook and Shenzhen real estate yearbook with the triangulated information from real estate agencies. Interview with the experts from the Institute of Shenzhen Real Estate Research and developers provided the most of the qualitative information about the context. The findings and results firstly showed that public land leasing system can manifest the market value of land and thus has been an effective way for the municipality to capture the land value and finance the provision of public service and urban development. While on the other hand, such a system improved the transparency of land transferring process and the efficiency of land resource allocation. However, it tended to raise the land price in primary land market either due to the strengthened