Land Use Policy 92 (2020) 104432

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Land Use Policy

journal homepage: www.elsevier.com/locate/landusepol

Land use regulation and urban land value: Evidence from China T
a,b,c a,b, d
Wenjing Han , Xiaoling Zhang *, Xian Zheng
a
Department of Public Policy, City University of Hong Kong, Hong Kong, PR China
b
Shenzhen Research Institute, City University of Hong Kong, Shenzhen, PR China
c
Department of Land & Real Estate Management, Renmin University of China, Beijing, PR China
d
Department of Economics, Jinan University, Guangzhou, Guangdong, PR China

A R T I C LE I N FO A B S T R A C T

Keywords: Land use regulation has always been regarded as one of the most crucial means of macro-control of urban
Land use regulation growth, which can affect a city’s land values directly and further determine related urban economic well-being.
Land prices Since the New Type Urbanization Strategy proposed by the government in 2014, China’s mode of urban growth
Land supply has been transformed from addressing “quantity” to “quality" in the urbanization process. In this case, the
Floor area ratio
regulation of land use by the Chinese government plays a more important role in urban growth. With their
Urban growth
planned land regulatory scheme, the various instruments employed by Chinese governments have quite different
mechanisms influencing land prices. However, there are no rigorous studies focusing on the land use regulation
system and its impact on land values to date, particular in China. This study seeks to explore how land use
regulation affects urban land values through the systematic lens. We summarize the main land use regulatory
instruments based on the analysis of China’s planned land use system and urban land banking system, including
the construction land quota, constraints on the allowed floor area ratio (FAR) of each land transaction parcel,
and land supply restrictions. A new dataset based on land transaction data from 2007 to 2016 that covers 286
prefectural cities from the country’s coastal, central, and western regions is used in the empirical analysis. The
results show that the effects of the floor area ratio (FAR) on land values are significant and positive, with the
residential and commercial land supply ratio being a key factor. Moreover, the results imply that the effects of
constraints on FAR and commercial land supply vary between regions. These findings indicate that the Chinese
land market is considerably distorted by excessive administrative interventions by local governments, in the
stage of urban transition guided, the capable regulatory instruments could play an important role in adjusting
urban land prices and hence impact on urban growth.

1. Introduction “quantity” to “quality" in the urbanization process. In this case, the

China has been experiencing rapidly advancing industrialization
and urbanization since the economic reform started in 1978, with
dramatic urban growth in the face of a unique institutional background.
Many Chinese studies refer to this rapid urban growth as urban sprawl
(Zhang, 2000; Wu and Yeh, 1999; Yu and Ng, 2007; Yue et al., 2013;
Gao et al., 2016). With the increasing expansion of urban scale, a large
number of rural areas have been occupied by urban construction, which
creates not only the GDP growth but also a series of urban diseases that
seriously affect urban production and the inhabitants’ quality of life,
such as a crowded population, traffic congestion, and environmental
pollution (Brueckner, 2000; Ewing, 2008; Liu et al., 2018). Since the
New Type Urbanization Strategy proposed by the government in 2014,
China’s mode of urban growth has been transformed from addressing
regulation of land use by the Chinese government plays a more vital
role in urban growth, as all land in China is publicly owned and mu-
nicipal officials act in the role of the agent in practice (Ding and
Lichtenberg, 2011). The government is both the "referee" and the
"player" in the land allocation market, and thus land use regulation is
generally regarded as an effective and beneficial tool for regional eco-
nomic growth.
The urban expansion also poses such sustainability issues as ecolo-
gical challenges and social issues relating to people’s well-being, and
land use regulatory tools are employed to mitigate the cost of urban
development and attain sustainable land use governance (Bovet et al.,
2018). According to urban economic theories, the regulation of land use
is necessary to internalize negative externalities of population and
economic activity space agglomeration by correcting market failures.

⁎
Corresponding author at: B7309, Department of Public Policy, City University of Hong Kong, Tat Chee Avenue, Kowloon, Hong Kong, PR China.
E-mail address: xiaoling.zhang@cityu.edu.hk (X. Zhang).

https://doi.org/10.1016/j.landusepol.2019.104432
Received 15 June 2019; Received in revised form 9 November 2019; Accepted 14 December 2019
0264-8377/ © 2019 Elsevier Ltd. All rights reserved.
W. Han, et al.
Research in developed countries indicates that land use regulation af-
fects urban growth by shaping urban form (Alonso, 1960; Mills, 1972),
migration population patterns (Carlino and Mills, 1987; Mulligan et al.,
1999; Muth, 1971), land development density patterns (Boyce, 1963;
Carruthers and Mulligan, 2007), and the housing market by increasing
demand and restricting supply (Mayer and Somerville, 2000; Feiock
et al., 2008). The role of the urban growth boundary and land supply
restrictions and zoning as main steering instruments has been examined
in a growing body of recent empirical studies (Dempsey and Plantinga,
2013; Glaeser et al., 2005; Huang and Tang, 2012; Jackson, 2016;
Jaeger et al., 2012; Long et al., 2015; Shertzer et al., 2018).
Axiomatically, growth-induced urbanization requires the utilization
of land (Deng et al., 2010). Land value is thus firmly attached to urban
growth. According to the urban economic theory developed based on a
monocentric city, land value declines with the distance from the CBD
(O’Sullivan, 2007), therefore land value can reflect the economic value,
attractiveness, and amenities available at a specific location (Kok et al.,
2014). In urban areas, variations in land prices reflect the geographical
advantages of a particular site, as local externalities and land use po-
licies also affect urban growth (Capozza and Helsley, 1989; Cheshire
and Sheppard, 1995). Land value therefore plays a critical role in land
arrangements and can be regarded as a general indicator of the level of
urban development and potential for economic growth. Here, we em-
ploy urban population and urban built-up area, as well as wage levels
(the commonly used proxy for the level of urban agglomeration growth)
to trace the positive correlation between land prices and urban growth
using 2016 data for China’s prefectural cities (Fig. 1).
It is believed that land use regulation is capable of affecting land
prices by various regulatory instruments. However, there has been little
empirical research into China’s land use regulation system, as there are
difficulties in the measurement and quantification process due to the
Fig. 1. Scatter graphs of the relationships between the 2016 Chinese prefectural cities’ urban population size/built-up area/wage level and land prices.
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Land Use Policy 92 (2020) 104432
complexity and variability of China’s unique planned land use system
and urban land banking system. Of the few studies that have been
made, Li (2014) uses the difference between bidding, auction, and land
transfer values as a proxy variable; Yaping and Min (2009) and Tian
et al. (2017) mainly focus on the role of planning in regulating land use;
while Brueckner et al. (2015) and Cai et al. (2017) partially address the
constrained floor-area ratio (FAR) to reflect the stringency of China’s
land use regulation system. Despite the merits of these studies, the
measures of land use regulation are usually one-sided, lacking con-
sideration of the different instruments adopted by the government in
their land use regulation practices, which necessitates the need for
more systematic studies. Additionally, the empirical research into land
use regulation has mainly addressed its significant effects on the
housing market (Peng and Wheaton, 1994; Lai and Wang, 1999;
Ihlanfeldt, 2007; Hilber and Vermeulen, 2015; Liang et al., 2016).
However, the impact of land use regulation on urban land values is
overlooked in most studies. Regarding that, it is valuable to explore the
impact of the land use regulation mechanism on urban land values
using a systematic framework for better validity.
In response, this study explores the effectiveness of the Chinese
government’s multiple land use regulatory instruments based on the
analysis of China’s planned land use system and urban land banking
system, as the important means of controlling urban growth, through
the examination of their effect on urban land values. Specifically, the
construction land quota, constraints on the allowed floor area ratio
(FAR) of each land transaction parcel, and land supply restrictions are
summarized as the primary land use regulatory tools. Moreover, a new
dataset is used based on land parcel transactions, consisting of
1,872,592 land parcels and covering 286 prefectural cities from the
coastal, central, and western regions. System generalized method of
moments (System GMM) is employed for the specific empirical test to
W. Han, et al.
reduce endogeneity issues. The results for the different land use reg-
ulatory instruments are discussed both nationally and in terms of re-
gional heterogeneity.
The remainder of this paper is organized as follows: Section 2 pro-
vides a brief review of the literature and introduction to land use reg-
ulation in China; Section 3 describes the data source and empirical
methodology used; Section 4 provides both the statistical and empirical
results; Section 5 contains a discussion of the results; while Section 6
provides some brief concluding remarks and policy implications of the
study.
2. Literature review and land use regulation in China
2.1. Overall review
The system of land use regulation and its impacts are an enduring
issue, with the role of regulation in adjusting the housing market and
prices receiving particular attention (Mark and Goldberg, 1986;
Pollakowski and Wachter, 1990; Hannah et al., 1993; Quigley and
Rosenthal, 2005; Sunding and Swoboda, 2010; Jackson, 2018). How-
ever, there is a relative lack of both theoretical and empirical studies of
urban land regulation focused on land value.
Of the small amount of literature available, one branch concerns the
influence of land use plans or zoning laws on land values. Urban growth
boundary controls, building permits, and density constraints are the
best-known instruments involved in land use plans or zoning. An urban
growth boundary (UGB) is a line drawn around the metropolitan area
that separates urbanizable land from rural land and delineates where
urban development may take place (Nelson and Moore, 1993; Jun,
2004). The empirical evidence is divided over whether UGBs moderate
urban growth effectively (Cho et al., 2008). The empirical evidence also
mixed over the impact of UGBs on land values, with most studies ten-
tatively supporting the argument that UGBs will increase land values by
limiting the supply of urban developable land (Nelson, 1985; Knaap,
1985; Ball et al., 2014; Mathur, 2014). Other empirical studies by Cho
et al. (2008), for example, find that UGBs do not play a role in affecting
land values in rural-urban submarket interfaces due to the variability
and uncertainties involved in the process of UGB enforcement across
land markets. In terms of building permits, the Asabere and Huffman’s
(2001) study shows that land prices rise along with planned increases in
residential building permits. Evidence from the U.S. also suggests that
land prices are higher in municipalities where more independent re-
views are needed to obtain a building permit or zoning change (Kok
et al., 2014). In another study, Gluszak and Zygmunt (2018) argue that
administrative decisions are capitalized in sales prices, arriving at a
similar conclusion, in that land with valid development and building
permits is sold at higher prices.
In addition to controls on UGBs and building permits, zoning or
planning constraints also strongly affect the density of urban develop-
ment (Newburn and Ferris, 2016). Restrictions on the density of al-
lowable land development reduce the potential profit of leased land
parcels, leading to the developers’ decreased willingness-to-pay and
thus reducing its transaction value. Relaxing the constraints on devel-
opment density will therefore increase the land price of parcels. Several
empirical studies have demonstrated the direct impact on land values
on the effective floor area ratio (FAR) of land parcels – a measurement
of allowable land development density that is limited by zoning or
planning restrictions on the shape of buildings. Gao et al.'s (2006) Ja-
panese study found the maximum FAR imposed on land parcels to have
a positive and nonlinear effect. Evidence from China also indicates that
a higher allowed-FAR leads to higher land prices, and this effect varies
across cities and locations within cities significantly (Brueckner et al.,
2015).
Studies focusing on the impact of land supply constraints on housing
prices have attracted more attention than land values (Peng and
Wheaton, 1994; Lai and Wang, 1999; Ihlanfeldt, 2007; Hilber and
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Land Use Policy 92 (2020) 104432
Vermeulen, 2015; Liang et al., 2016), however, these verify the notion
that restrictions on housing supply tend to increase housing prices.
Despite their merits, there are no rigorous studies of how different
Chinese land use regulatory instruments affect urban land values. It is
therefore important to explore the impact of the land use regulation
mechanism on urban land values using a systematic framework for
better validity.
2.2. Land use regulation in China’s planned land use system and urban land
banking system
Understanding China’s land use regulation can start with the unique
top-down planned land use system involved, which is carried out
through the country’s Master Land Use Planning and Annual Land Use
Planning policies (Wang et al., 2009). Established 15 years ago, Master
Land Use Planning is regarded as a forward-looking overall strategic
planning document and is used to organize all the country’s regional
land based on the requirements for the sustainable development of the
national social economy and local natural, economic, and social con-
ditions – aiming to strengthen the rational use of land resources and
promote the coordinated development of the national economy (Wei
et al., 2016; Zhou et al., 2017). As an instrument for land use man-
agement, it plays a dominant role in regulating urban expansion and
protecting farmland by controlling land use. Currently, China’s hier-
archical land use system can be divided into five administrative levels
of national, provincial, prefecture, county, and township. The Master
Land Use Planning document must be compiled at each administrative
level in accordance with the planning document at the next higher level
and approved by that level. This regulatory process is based on the top-
down quota system, which contains land development and conversion
quotas to regulate the maximum amount of urban construction land and
minimum amount of farmland, as well as the maximum amount of rural
land allowed to be converted into new urban construction land (Tian
and Ma, 2009). In practice, all the quotas are allocated by the central
government and implemented under the top-down land use system
through the Annual Land Use Planning policy, which must align with the
long-term land use planning. Within the quota system, therefore, the
total amount of urban area and construction land is regulated from
central government to township levels.
Guided by the Master Land Use Planning, the land use allocation
committee arranges the uses of land parcels to be leased and determines
the restrictions on urban land development density every year before
the parcels are turned over to the bureau responsible for land leasing
(the so called “Land Reserve Center” in many Chinese municipal gov-
ernments) (Cai et al., 2017). Zoning is employed in the Master Land Use
Planning, which specifies the different usages of land parcels and ac-
celerates the integration between neighboring regions through spillover
effects from the multi-region perspective (Yu and Cai, 2016). For the
density restrictions on urban land development, the Master Urban
Planning document –also a form of long-term planning (10–20 years for
different cities) – is used to ascertain and optimize the urban land use
structure. Quotas for FAR, green coverage, building density, etc., are
allocated in the Urban Regulatory Detailed Planning document to restrict
specific urban development densities. Of the density regulatory quotas,
the upper FAR limit is set for each land parcel before sale, which is the
most crucial factor influencing the density of urban land development
(Brueckner et al., 2015).
Once the land parcels are turned over to the land bureau for
transfer, they are reserved in the land banking system (see Fig. 3), which
means that the public ownership of Chinese urban land provides an-
other powerful instrument for local government to intervene in the
local land market. Since national and provincial governments are more
involved in policy-making and supervision in practice, municipal gov-
ernments (as the de facto agent of urban land) have the power to reg-
ulate urban land use and have direct control over land supply under the
constraints of the top-down quota system. The establishment of the land
W. Han, et al.
Fig. 2. Fitted value of GDP and the amount of total land (for industrial, commercial, and residential uses) released by the Chinese government3.
banking system was proposed to enhance the government’s ability to
allocate land supply to different uses (Tian and Ma, 2009). At this stage,
local governments can intervene in the land market by applying con-
straints on the land supply structure for different specific uses and
dictating the transfer mode of land transaction parcels to adopt dif-
ferent land supply strategies.
In practice, as the local government remains a monopsony in the
primary urban land market, land transfer is the best and quickest source
of revenue for those bent on rapid economic development, (Zheng and
Huang, 2018). As leasing more industrial and commercial land helps
increase local budget revenue by generating sustainable revenue in the
form of FDI, VATs, and business taxes (Liu et al., 2008; Tao et al., 2010;
He et al., 2014), there is a strong tendency for local governments to
release more construction land for sale in order to maximize their land
revenue (as illustrated in Fig. 2, since 2003 there has been a positive
correlation between GDP and the total amount of industrial, commer-
cial, and residential land released by Chinese government).
As mentioned earlier, since the total land supply quota is regulated
by the land use planning system, the actual land supply strategies vary
according to the political and economic ambitions of different local
governments. These involve two kinds of incentives: one is to attract
more foreign investment by selling industrial land at a low price,
aiming to develop the local economy and achieve GDP growth; the
other is to transfer urban land for commercial or residential use at a
high price, aiming to cover the fiscal deficit of urban development.
Therefore, the urban land supply structure generally reflects the local
Fig. 3. China’s urban land banking system.
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Land Use Policy 92 (2020) 104432
government’s supply strategy preferences and interventions in the land
market.
In addition, the consequences of the “rushed” Chinese urbanization
process over the past four decades should be noted, as this relied
heavily on the input of such production factors as land, which has led to
a serious imbalance in spatial development. The implementation of
land use regulation also varies between regions. For instance, cities in
China’s coastal region (that have been experiencing rapid economic
growth with less pressure to increase fiscal revenue) tend to have
tighter hierarchical constraints on rural land conversion and are more
likely to impose constraints on the supply of land for urban develop-
ment. In contrast, the central and western cities (where economic
growth is relatively slow, with less development pressure and arable
land) are less productive and their control over rural land conversion
and urban land supply is often less stringent.
3. Data and method
3.1. Data source
Land prices (an indicator of land supply restrictions), as well as the
allowed-FAR at city-level, are calculated using land transaction data,
which is obtained from a unique database of micro transaction records
of land parcels. The land parcel data are from the China Land Market
webpage (http://www.landchina.com) employing Python software,
and contain the plot information of the address, the specific land use
W. Han, et al. Land Use Policy 92 (2020) 104432

Fig. 4. 2007–2016 average land prices of Chinese prefectural cities.

type, the mode of land transfer (e.g. tender, auction, or listing), trans-
action price, plot area, allowed-FAR, etc. The data consist of 1,872,592
observations of land sales during 2007 and 2016. We matched the land
transaction parcels at prefecture city level (286 cities), and, calculated
the average land price (logarithm of lot price per square foot) as the
final value for each city. Additionally, the limited maximum land
construction quota in 2020 is from each city’s Master Land Use Planning
(2005–2020), which is open to public on the Natural Resources
Bureau’s website, to calculate the quota for surplus land construction by
city for each year. Moreover, the data employed to calculate the urban
land supply ratio by market transfer is from the Land and Resources
Statistical Yearbook (2010–2017); while the data used to measure the
control variables involved in the empirical model, such as per capita
GDP and employment density, is obtained from the China Urban
Statistical Yearbooks (2008–2017).
Figs. 4 and 5 show the 2007–2016 average prefecture and regional
land prices respectively. Clearly, the average land prices of coastal cities
are much higher than the central and western cities, implying that they Fig. 5. 2007–2016 average regional land prices.
are affected by different levels of urban economic growth. Note: The variations of base map color show the average land price from 2007
to 2016 of the city; the size of the circle represents the maximum construction
land quota fixed in the Master Land Use Planning of the city.
3.2. Empirical methodology

Theoretical studies have shown that the impact of land use regula-
tion on urban land varies between different strategies. Using the panel
dataset, we aim to provide empirical evidence of these effects on the
land values of Chinese cities, which is the first study to examine the
impact of various land use regulatory instruments on China’s urban
land values.
Since we have a dynamic panel data model of lagged levels of de-
pendent variables, in addition to a two-way fixed effect model, we also
use the System GMM methodology for empirical testing, as proposed by
Arellano and Bond (1991) and further developed by Blundell and Bond
(1998). System GMM estimation is employed as it is more efficient than
Difference GMM estimation because the instruments in the level
equations remain good predictors for endogenous variables (Blundell
and Bond, 1998).
As Saiz (2010) note, the instruments for growth controls have long
been regarded as endogenous devices to keep land prices high in areas
with valuable land. Also, governments with ambitions to obtain more
land sale revenue tend to maximize local land values by controlling the

5
W. Han, et al.
supply of residential and commercial land (since the land parcels leased
for these uses are more likely to have a high price through the land
market), or increasing the development density allowed for each leased
land parcel. As alternative consistent estimators with lagged dependent
variable are only valid when the independent variables are strictly
exogenous, it is assumed that the land supply restrictions and allowed-
FAR are endogenous. The model is
lnLPi, t = α + β1 LRi, t + θXi, t + δi +τt + εi, t
where iandt indicate city and year respectively, lnLP is the logarithm of
the land price per m2, and LR is a vector of explanatory variables.
According to discussion in Section 2.2, various variables concerning
both the limits on the land area available for development and density
of development are used for the measurement of land use regulation,
which contain the land construction quota, allowed-FAR of the leased
parcel, and land supply restrictions. Specifically, the CLQ variable
(construction land quota) is used to measure the quota limit, ILS (in-
dustrial land supply ratio), RLS (residential land supply ratio), CLS
(commercial land supply ratio), and MLS (land supply ratio through
market transfer) to indicate the constraints on the land area available
for urban development, and FAR to measure the restriction on the
density of land development. All the explanatory variables are loga-
rithmized.
X is a vector of control variables, including ED (employment den-
sity), FI (investment in fixed assets per GNP unit), GNP (per capita
GNP), and TIO (output of tertiary industry per build-up area unit); δi is
the city fixed effect, capturing time-invariant unobserved factors at the
city level; τt is the year fixed effect, controlling for the national trend of
agglomeration cost; and εi, t is the error term. The standard error is
clustered at the city level, to mitigate any potential serial correlation
and heteroscedasticity in the data. The definitions and descriptive sta-
tistics of the key variables are provided in Table 1.
4. Results and discussion
4.1. Role of the construction land quota
According to the summary of the descriptive analysis (Figs. 6 and 7),
the average maximum construction land quota in eastern cities of
135,520 ha is larger than that in central and western regions (116,430
and 93,970 ha respectively). Table 2 shows the impact of construction
land quota on land prices. The Wald χ2 and Sargan χ2 jointly indicate
that the models in the Table are valid and acceptable. As columns (1)
and (2) show, construction land quota constraints have no significant
influence on the land prices for all cities, with columns (3) and (5)
indicating the same regionally.
The effect of the construction land quota on land price is not sta-
tistically significant in general, which is consistent with the doubts
raised in other studies concerning about the efficiency and suitability of
land use planning in developing countries (Todes, 2012; Sharifi et al.,
Table 1
Definitions and descriptive statistics of the variables.
Variable Description
2
LP (CNY/m ) Average land price of all land transaction parcels(industrial leased parcels are excluded for their non-
market transaction price)
CLQ (10,000 ha) Fixed by the Master Land Use Planning
FAR Average allowed-FAR of all land transaction parcels
ILS Amount of industrial land supply/total land supply area
RLS Amount of residential land supply/total land supply area
CLS Amount of commercial land supply/total land supply area
MLS Ratio of land supplyby market leasing, including the leasing mode of tender, auction, and listing
ED (10 000 persons/km2) Employment population/total administritive area
FI Investment in fixed assets/GNP
GNP (CNY/person) GNP/total population
TIO (CNY10,000/km2) Output of tertiary industry/urban built-up area
Land Use Policy 92 (2020) 104432
2014). Even though the Master Land Use Planning issued by the local
municipal government is a forward-looking strategic planning docu-
ment with a 15-year regulatory period, the inevitable uncertainties
have been ignored in the initial design stage (Shi, 2005). The stringency
of top-down quota settings may fail to satisfy the real demand of urban
development, leading to the loss of urban land use efficiency (Halleux
et al., 2012; Zhang et al., 2014; You and Yang, 2017). In practice,
frequent quota adjustments can be made according to the practical si-
(1)
tuation of the local government, suggesting that the construction quota
may not be an effective guideline for shortsighted urban land admin-
istrative managers.
The experiences of countries in Europe and South Africa suggest
that strategic spatial planning would be beneficial for urban growth
management, since it allows the engagement of various stakeholders
involved and emphasizes the linkages between revision, implementa-
tion, and monitoring (Albrechts et al., 2003; Healey, 2004; Todes,
2012). Since 2014, the Chinese government has advocated the strategy
of “multi-planning integration" and reorienting master planning toward
strategic spatial planning, aiming to address the issue of fragmented
governance and improve urban growth control efficiency. In order to
coordinate the practical urban development demands by multi-plan-
ning departments, the land use quota system still provides the key to
organizing the overall land use arrangements and spatial distribution
(Gu and Peng, 2015).
4.2. Role of FAR regulation
Fig. 8 shows the distribution of the average allowed-FAR at the
prefecture city level. The size of the blue circle represents the average
land price of each city, while the height of the bar indicates the average
allowed-FAR. The different heights of bars suggest the average allowed-
FAR varies across prefectural cities, with the coastal cities being as-
signed the highest FAR (2.25), followed by the western (2.11) and
central cities (2.03). Both indices have an upward trend from 2007 to
2016, implying the governments’ tendency to loosen the restrictions on
the density of land development over the period Fig. 9).
Table 3 shows the impact of allowed-FAR on land prices. As ex-
pected, the estimators are all positive and significant at the 1 % level,
suggesting that allowed-FAR holds the key to land value. Moreover, the
estimated FAR coefficient varies across regions, with the impact of FAR
regulation being considerably higher for western region cities.
The relationship between land values and density constraints on
land use is not surprising, as a higher allowed-FAR increasing local
urban land prices in Chinese cities is similar to Brueckner et al.’s
(2005)’s findings. The government treats FAR as a policy tool for
forming spatial development patterns and maximizing the land rev-
enues associated with the restrictions on development capacity.
Generally, allowed-FAR is a control index set in the Urban Regulatory
Detailed Planning policy, a change of which leads to a substantial in-
crease or decrease in land transaction prices. It is believed that a higher
Observations Mean Std. Dev.
2,672 2,336.5800 3349.4920
286 11.9092 8.0757
2,728 2.1588 0.8110
2,174 0.3112 0.1421
2,227 0.2096 0.1034
2,168 0.0895 0.0582
2,523 0.4935 0.2043
2,855 0.0064 0.0158
2,836 1,172.6320 1,832.2710
2,854 39,538.5100 27,644.7900
2,838 58,650.8700 3,346,982.0000
6
W. Han, et al. Land Use Policy 92 (2020) 104432

Fig. 6. The maximum construction land quota (2020) of Chinese prefecture cities.

Table 2
Regression results of land prices with construction land quota.
All Coastal Central Western

cities cities cities cities

(1) (2) (3) (4) (5)

1
Log (LP) 0.0415 0.0379 0.0117 0.1512***
−0.035 −0.0526 −0.0308 −0.0472
Log (CLQ) −0.0525 0.0037 −0.3996 0.0943* 0.2209
0.6600 −0.1321 −0.2869 −0.0558 −0.3485
Log (FI) 0.0853*** 0.0768*** 0.0807*** 0.1039*** 0.0361***
0.0431 −0.0149 −0.0186 −0.0255 −0.0164
Log(ED) 0.0235 0.2102* 0.3021*** 0.1435 0.2034
0.0734 −0.1102 −0.1121 −0.1425 −0.1284
Log (TIO) 0.0119 0.0885 0.0581 0.2215 0.1525
0.0828 −0.1682 −0.1693 −0.1685 −0.1495
Log (GNP) −0.0403 0.3703** 0.3298** 0.4299*** −0.0269
0.1719 −0.1815 −0.1684 −0.1565 −0.126
N observations 2713 2381 996 901 484
R2 (overall) 0.2264
F-value/Wald χ2 34.1*** 129.73*** 118.93*** 63.18*** 31.40***
Fig. 7. Summary of maximum regional construction land quota. Sargan test (χ2) 132.57** 77.43*** 73.88*** 90.39***

allowed-FAR is associated with a greater intensity of land development,
and thus encourages investors to be more willing to pay higher prices
due to the greater profit potential involved.
Additionally, the empirical results suggest that the sensitivity of
land price to regulated FAR levels in western cities is higher than in
central and eastern cities, indicating the stringency of FAR constraints
to be heterogeneous. Compared with the coastal and western regions,
the urban land transfer markets in western regions are always subject to
more local government interference, with a 2007–2016 average ratio of
land market supply of only 44.15 % – much lower than the coastal and
central regions. Since the introduction of the 2006 11th Five-Year Plan
for the Great Development of the West national strategy by the Chinese
central government, the local governments of western cities have
Note: The CLQ variable is calculated by the fixed total construction land in
2020 minus the annual urban construction land area to indicate the surplus
construction quota in each year; the standard errors are robust for all the
models; *, **, and *** denote significant at the 0.1, 0.05, and 0.01 level re-
spectively; and the city fixed effect and year fixed effect are both controlled by
the two-way fixed effect shown in column (1).
continuously transferred construction land at a low price but a high
allowed-FAR, and thus have gradually become priority investment
places for many developers and enterprises. In the case of low land
prices and a high allowed-FAR, it is reasonable to suppose that devel-
opers in the western region are more sensitive to the signal of a binding
FAR limit on the leasing land parcel. Unfortunately, there is no

7
W. Han, et al. Land Use Policy 92 (2020) 104432

Fig. 8. 2007–2016 average allowed-FAR of Chinese cities.

Table 3
Regression results of land prices with allowed-FAR.
All Coastal Central Western

cities cities cities cities

(1) (2) (3) (4) (5)

Log (LP)(1) 0.0273 0.0218 −0.0168 0.0695

−0.0294 −0.048 −0.0317 −0.0511
Log (FAR) 0.5571*** 0.8115*** 0.5816** 0.7618*** 1.0071***
0.0454 −0.1233 −0.2482 −0.2086 −0.2134
Log (FI) 0.0721* 0.1379*** 0.1109*** 0.1653*** 0.1029***
0.0434 −0.016 −0.0206 −0.0287 −0.0224
Log (ED) −0.0177 0.2008** 0.1403 0.1185 0.2204
0.0687 −0.1 −0.1095 −0.1359 −0.1519
Log (TIO) −0.0279 0.068 −0.0337 0.1909 0.0065
Fig. 9. 2007–2016 average allowed-FAR by regions. 0.0584 −0.1693 −0.056 −0.2088 −0.1744
Log (GNP) −0.0323 0.2728 0.4976*** 0.3699*** −0.0805
0.1780 −0.1703 −0.1343 −0.164 −0.1103
comparable empirical evidence concerning the regional differences re- N observations 2725 2,394 996 914 484
lated to studies focusing on the impact of FAR on land prices or housing R2 (overall) 0.3084
prices in China. More research is needed to investigate this interesting F-value/Wald χ2 46.93*** 180.81*** 88.16*** 69.08*** 37.34***
result further in terms of the mechanism behind the impact of FAR on Sargan test(χ2) 123.59*** 68.55** 69.48*** 78.51***

land use structure, industrial structure, and even developer behaviors.

4.3. Role of land supply restrictions
The average supply ratio of industrial land for all the samples (31.12
%) is higher than for residential land (20.96 %), with commercial land
being much lower at only 8.95 %, the Chinese local governments
tending to supply a higher amount of industrial land for urban devel-
opment (Table 4). Moreover, the diminishing land supply ratio for in-
dustrial and residential use suggests there are gradual intensive
Note: The standard errors are robust for all the models; *, **, and *** denote
significant at the 0.1, 0.05, and 0.01 level respectively; and the city fixed effect
and year fixed effect are both controlled by the two-way fixed effect shown in
column (1).
restrictions on their supply (Fig. 11). The different ratios between the
regions suggests that local governments, reflecting the balance between
local urban development demand and regulatory orientation, impose
various land supply strategies (as shown in Figs. 11 and 12).
The average land supply ratio by market transfer, indicating the

8
W. Han, et al. Land Use Policy 92 (2020) 104432

allowed for development for different uses and the supply ratio of land
market transfer. The findings are quite similar for the models reported
in columns (1)–(4), with the effects of the residential and commercial
land supply ratio on the land value being always positive and sig-
nificant, both for the total, coastal, central, and western cities. The
estimated value of the coefficient of the one-period lagged residential
land supply ratio in western cities is higher than coastal and central
cities. For the estimated coefficient of the one-period lagged commer-
cial land supply ratio, the values in middle and western regions are
more than double the estimated coefficient of coastal cities, indicating
that the role of constraints on commercial land supply from planning
policies is more significant in promoting land value in these regions.
However, the more surprising results are that the one-period lagged
industrial land supply ratio and the supply ratio of land market transfer
have no significant impact on land prices in both models.

Fig. 10. Summary of average allowed-FAR by regions. 4.3.1. Why the constraints on commercial and residential land available
matter
According to the empirical results, the restrictions on the land area
Table 4
Summary of average land supply ratios for different use and land supply ratio of available for different uses have a significant influence on urban land
market leasing by regions. values, with higher supply ratios of residential land and commercial
land inducing higher land prices, which is consistent with the main
Observations Mean Std. Dev.
finding of Zhang et al.’s (2017) study. The government monopoly of
Residential land supply ratio (average) urban land supply and the highly competitive land bidding and transfer
All cities 2,227 0.2096 0.1034 mechanism provide the institutional fundamentals for local govern-
Coastal region 902 0.2158 0.1011 ments to choose an appropriate combined quantity-price strategy ac-
Central region 856 0.2107 0.1020
cording to market conditions to achieve their land finance objectives.
Western region 469 0.1959 0.1092
Commercial land supply ratio (average) Since most industrial land is sold at a low price through the"one-on-one"
All cities 2,168 0.0895 0.0582 agreement, local governments are more likely to sell commercial and
Coastal region 872 0.0913 0.0627 residential land through more competitive channels, such as by tender,
Central region 842 0.0871 0.0511 auction, or listing. The transaction price of commercial and residential
Western region 454 0.0906 0.0613
Industrial land supply ratio (average)
land is thus usually much higher than industrial land. The latest Na-
All cities 2,174 0.3112 0.1421 tional Standards for Urban Land Use Classification and Planning Con-
Coastal region 885 0.3224 0.1437 struction (2012) clearly stipulates the proportion of land area for major
Central region 836 0.3189 0.1345 uses, of which the percentage of industrial land cannot exceed 30 %
Western region 453 0.2748 0.1472
(from the more stringent 25 % in the 1991 national standards). How-
Supply ratio of market transfer (average)
All cities 2,523 0.4935 0.2043 ever, in order to achieve the dual objectives of economic growth and
Coastal region 1,013 0.5226 0.2126 maximized land revenue, local governments increase the proportion of
Central region 972 0.4918 0.1966 industrial land supply, with low prices through agreements to attract
Western region 538 0.4415 0.1914 investment and developers,2 while reducing the proportion of re-
sidential and commercial land supply with high prices through com-
petitive land market transfer (Tao et al., 2009; Yan, 2018).
degree of marketization of state-owned land, is 49.35 % for all cities,
Although these results provide evidence that increasing the pro-
with 52.26 % in coastal cities - higher than the central (49.18 %) and
portion of commercial and residential land supply raises the average
western regions (44.15 %), suggesting that nearly half the amount of
urban land price, it is worth noting the potential underlying threat in-
urban land is transferred by the mode of agreement under government
volved, i.e., the Chinese government can continue to intervene in land
intervention (Fig. 13). Fig. 14 suggests thethe ratios in different regions
supply to maintain local land prices to obtain more urban economic
both decreased. This may be because governments have always been
growth. As Tao et al. (2009) comment, however, the regional "compe-
granting industrial land by agreement, and the land supply ratio for
titive" development mode, in which Chinese local governments provide
other public management uses1 (which could also be reflected in the
low-cost industrial land, subsidized infrastructure, and even relax labor
diminishing land supply ratio for urban construction use) gradually
and environmental protection standards to attract manufacturing in-
increased, since such types of land are directly assigned by governments
dustries, is unsustainable in terms of economic and social development,
to the users (another nonmarket transfer mode - see Fig. 3). Moreover,
and even environmental protection. Using the cases of Chinese 105
the reducing land supply ratio by market transfer is also a reflection on
cities, Xie (2018) found the supply strategy of a large amount of low-
the increased constraints on the land supply for urban development
cost industrial land with a small amount of high-price residential land
uses.
induces residential segregation during the urbanization process, ren-
In terms of the empirical test results shown in Table 5, as the main
dering rural residents unable to migrate to cities and thus widening the
empirical specification in Eq. (1) shows, the key explanatory variables
income gap between urban and rural areas. Moreover, the excessive
of interest are the one-period lagged supply ratios of the land area
supply intervention by local governments has induced a series of such
negative impacts on China's economic and social development as
1
According to the Land and Resources Statistical Yearbook, the total amount of
2
land supply is the sum of the land supply for different uses, including land for Fig. 8 indicates the 2009-2016 supply ratio of industrial land in different
industry, mining, and warehousing (industrial uses), land for commercial and regions to be mostly above 30%.
3
service use (commercial uses), land for residential use, and land for other types The Spearman test shows that GDP and the amount of total land are inter-
of uses (mainly for public management). dependent, with a Spearman's rho of 0.5692 (p = 0.0336).

9
W. Han, et al.
Fig. 11. 2009–2016 average regional land supply ratios for industrial, residential, and commercial uses by regions.
affecting the transformation and upgrading of industrial structure, re-
ducing the efficiency of resource allocation between enterprises, ag-
gravating the violation of land rights and corruption, and raising
housing prices (Li et al., 2016; Zhang et al., 2017; Zhao and Cao, 2017).
In terms of regional differences, under the central-local decen-
tralization of the land supply system, local governments’ land supply
strategies were indeed constrained by multiple land use quotas for
centralized management. Since 2003, China has implemented a land
supply strategy that favors the development of the central and western
regions (Lu et al., 2015), in which local governments can use land
supply restrictions to stimulate urban economic growth with more re-
laxed and flexible land use regulation. While our results indicate that
the proportion of residential land supply has a similar effect on land
prices in coastal, central, and western regions, the proportion of com-
mercial land supply in the coastal region has less effect on land prices
than in the central and western regions. As Figs. 10 and 11 illustrate,
the land supply ratios of market transfer in central and western cities
are significantly lower than in coastal cities, indicating that local gov-
ernments in coastal and western cities are more likely to sell con-
struction land by non-market means to attract investors to their low-
cost land prices. Moreover, considering the land prices of central and
western cities are much lower than coastal cities, it is possible that the
proportion of commercial land allocated for sale through the market
has a greater pulling effect on land values in central and western re-
gions.
4.3.2. Intervention of Chinese local governments in open land transfers
Without exception, the result indicates that the supply ratio of land
market transfer does not play a significant role in promoting urban land
prices, implying the land transfer market in China is not a perfect one.
Given the relationships between governments, land developers, and
10
Land Use Policy 92 (2020) 104432
operators remaining hidden on various occasions, land prices are con-
siderably distorted by the prevalent excessive administrative interven-
tions, mostly resulting from information asymmetry between the land
supply and demand sides.
While selling land through public land leasing can generate re-
markable land revenues to local governments, the private transfer is
still the dominant means of land sale. This is because this kind of
transaction has a high degree of flexibility in decision-making, with the
transfer process being to negotiate land transaction prices and other
additional conditions between local governments and specific land-use
units, in which the government has absolute control over the land-use
developer and transaction price. Due to the unclear articles of the
particular public land transfer system, compared with the relative
transparency of auctions, there are still plenty of administrative op-
portunities for local governments to apply opaque and informal rules to
intervene in tendering and listing. Referring to Wang and Yang’s (2016)
study of 2003–2008 prefecture-level cities in China, lesser endowed
cities are associated with more local government interference in land
transfer, with listing sales resulting in the significant undervaluation of
land prices relative to auction sales. Therefore, a limitation of the
current study could be regarded as there being no further division of the
land transfer mode, leading to the lack of significance of the ratio of
land supply by market transfer.
5. Conclusion and policy implications
Land use regulation in China is a means of government intervention
to internalize the costs of urban agglomeration and helps determine
urban growth by promoting an increase in the urban economy and
shaping spatial patterns. Nevertheless, there has been little systematic
previous research on this topic. This paper responds by exploring the
W. Han, et al.
Fig. 12. Summary of the average land supply ratios for industrial, residential, and commercial uses by regions.
Fig. 13. Summary of average regional land supply ratio of market leasing by
regions.
effects of multiple instruments of land use regulation on urban land
value, also a comprehensive indicator of urban growth, based on a new
database of 1,872,592 land sales (2007–2016) in 286 Chinese pre-
fectural cities. The main land use regulatory instruments are summar-
ized based on the analysis of China’s unique planned land use system
and urban land banking system, including the construction land quota,
constraints on the allowed floor area ratio (FAR) of each land trans-
action parcel, and land supply restrictions. This comprehensive mea-
surement of Chinese land use regulation can be developed in future
11
Land Use Policy 92 (2020) 104432
work related to a variety of urban development issues.
The results indicate that restrictions on construction land quota
have no significant effect on land prices, probably due to the inevitable
uncertainties involved in the initial design stage and the need for ad-
justments in practice. However, allowed-FAR is a positive key to land
value, and the effects of residential and commercial land supply ratios
on land value are also positive and significant. Moreover, the results
imply the effect of FAR regulation varies between cities, the value of
western cities being considerably more sensitive than central and
coastal cities; while the role of constraints on commercial land supply is
more significant in promoting land value in the country’s central and
western cities. Also highlighted is the Chinese land market being con-
siderably distorted by the prevalent excessive administrative interven-
tions of local governments, which can be attributed to their different
land financial objectives and regulatory orientation. Land use reg-
ulatory instruments, restrictions on urban development density, and
land available for residential and commercial uses in particular, are
effective tools for government to control urban land values and further
contribute to urban growth.
In the stage of urban transition Nelson and Moore, 1993 guided by
the New Type Urbanization Strategy, the particular findings in this
paper are significant in both theoretical and empirical terms, and can be
attributed to the different regulatory instruments introduced by Chinese
local governments acting in different roles in adjusting the urban land
price and further promoting urban growth. In particular, with the top-
down planned land use system, land use planning documents still exert
a dominant function on controlling the spatial expansion of the urban
area. Regarding that, in the compiling process of “integrated spatial
planning” advocated by the Chinese government, improving the effec-
tiveness of quota stringency is expected to play a more important role in
W. Han, et al. Land Use Policy 92 (2020) 104432

specific cities’ economic development and urbanization process. In this

way, a rational land supply strategy could be devised and implemented
accordingly. Theoretically, this paper also provides an important re-
search topic for future studies of the relationship between urban growth
and the efficiency of government interventions in land market.

Acknowledgements

We thank the editors and anonymous referees for their valuable

comments and suggestions. The paper also benefited from discussions
with research team members from the Department of Public Policy in
the City University of Hong Kong. This research was funded by the
National Natural Science Foundation of China (71834005 and
71673232), the Research Grant Council of Hong Kong, China (CityU
11271716). This research is also supported by the Southern Marine
Science and Engineering Guangdong Laboratory (Zhuhai), Zhuhai,
China 519080. And it is also partially supported by the “Special
Fig. 14. 2007–2016 average regional land supply ratio of market leasing by Developing and Guiding Fund” for Building World-class Universities
regions.
(disciplines) of Renmin University of China.

Table 5
Regression results of land prices with land supply ratios for different uses.
All Coastal Central Western

cities cities cities cities

(1) (2) (3) (4) (5)

Log (LP)(1) 0.0203 0.0396 −0.0058 −0.0018

−0.024 −0.0341 −0.035 −0.0491
Log (RLS) 0.0278 0.5579*** 0.1746* 0.1055 0.3289***
0.0363 −0.1126 −0.1038 −0.1402 −0.1118
Log (RLS)(1) 0.1708*** 0.1389*** 0.1286** 0.1682***
−0.0533 −0.0531 −0.0648 −0.0806
Log (CLS) 0.0122 0.0963 0.045 0.1331 −0.0766
0.0278 −0.0707 −0.076 −0.0841 −0.096
Log (CLS)(1) 0.2815*** 0.1427*** 0.3245*** 0.3179***
−0.0313 −0.0396 −0.0454 −0.0599
Log (ILS) −0.0232 −0.4249*** −0.0969 0.0172 −0.1225
0.0332 −0.0952 −0.0978 −0.1018 −0.1004
Log (ILS)(1) 0.0515 −0.0555 0.1256 0.0501
−0.0608 −0.0762 −0.0823 −0.0734
Log (MLS) 0.0087 −0.0616 0.0308 −0.0683 0.0059
0.0273 −0.0968 −0.1118 −0.1074 −0.0902
Log (FI) 0.0981** 0.0605*** 0.0649*** 0.0735*** 0.0617***
0.0444 −0.0083 −0.0111 −0.0128 −0.0165
Log (ED) 0.1037 0.3764*** 0.1882** 0.2888*** 0.1538
0.0748 −0.0685 −0.0829 −0.0884 −0.1079
Log (TIO) −0.0544 0.0833 −0.0424 0.2394** 0.1998
0.0580 −0.0801 −0.0954 −0.1181 −0.1533
Log (GNP) −0.1308 −0.0528 0.3382** −0.0152 0.2179***
0.1718 −0.0921 −0.1436 −0.1247 −0.1225
N observations 2,047 2,255 919 873 463
R2 (overall) 0.2425
F-value/Wald χ2 14.39*** 389.9*** 186.77*** 196.23*** 77.95***
Sargan test (χ2) 163.76*** 145.22*** 128.88** 120.89**

Note: The standard errors are robust for all the models; *, **, and *** denote significant at the 0.1, 0.05, and 0.01 level respectively; and the city fixed effect and year
fixed effect are both controlled by the two-way fixed effect shown in column (1).

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