Price and Volume Divergence in China’s Real Estate Markets: The Role of Local Governments

2024-05-07 11:37:29

During the Covid-19 pandemic (2020-2022), Chinese cities witnessed a paradox: residential land and property prices surged even as transaction volumes plummeted. This divergence wasn’t due to supply shortages. Instead, we attribute it to active management of land and housing prices by local governments. Cities that had been more reliant on land sales and landcollateralized debt to fund their budgets before the pandemic experienced greater increases in land prices. Moreover, Local Government Financing Vehicles (LGFVs) procured more land at higher prices compared to other buyers. These findings underscore the significant roles local governments play in shaping real estate markets in China.

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