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Journal of Urban Economics 63 (2008) 743–757
Land and residential property markets in a booming economy:
New evidence from Beijing
Siqi Zheng a , Matthew E. Kahn b,∗
a Institute of Real Estate Studies, Tsinghua University, Beijing 100084, China
b UCLA, Institute of the Environment, La Kretz Hall, Suite 300, Box 951496, Los Angeles, CA 90095, USA
Received 19 November 2006; revised 27 April 2007
Available online 15 August 2007
Beijing’s housing market has boomed over the last fifteen years. The city’s population grew by 40.6% and per capita income
(in constant RMB) by 273.9% from 1991 to 2005. Using two geocoded data sets, we present new evidence on the real estate price
gradient, land price gradient, population densities, and building densities in Beijing’s recent free housing market. The classic urban
monocentric model’s predictions are largely upheld in Beijing. We also document the importance of local public goods, such as
access to public transit infrastructure, core high schools, clean air, and major universities, most of which have exogenous locations,
as important determinants of real estate prices.
© 2007 Elsevier Inc. All rights reserved.
JEL classification: R14; R31
Keywords: Housing market; Land market; Local public goods; Quality of life
1. Introduction
Beijing’s housing market has boomed over the last
fifteen years. Between 1991 and 2005, the city’s population grew by 40.6% to 14 million, and annual disposable
income per capita (in constant RMB) grew by 273.9%
to RMB 17.7 thousand ($2,200 in US dollars).1 To meet
growing housing demand in Beijing, real estate developers have purchased the right to build on numerous
land parcels from the government, first through negotiation and later through competitive auctions. In 2005,
the quantity of newly completed residential construc* Corresponding author.
E-mail addresses: (S.Q. Zheng), (M.E. Kahn).
1 National Statistic Bureau of China (1991–2005).
0094-1190/$ – see front matter © 2007 Elsevier Inc. All rights reserved.
tion reached 28.4 million square meters, accounting for
13.1% of the existing housing stock.
The explosive growth of new construction is remaking the face of the city. Active urban development
started when China reinstated urban land and real estate markets in the late 1980s. Before that, the urban
area in Beijing and other Chinese cities was typically
very compact, featuring a mixed pattern of residential
and non-residential land uses. Urban land was allocated
to work units through a central planning system. Housing units were built near the workplace and assigned by
work units to their employees, who paid very low, subsidized rent. After the reforms of the land and housing
markets, vast amounts of developable land have been
supplied and regulated by the government through longterm leases. At the same time, most of the work-unit
S.Q. Zheng, M.E. Kahn / Journal of Urban Economics 63 (2008) 743–757
housing has been privatized. Old homes in Beijing’s
central urban area have been demolished to make way
for new transport infrastructure, commercial developments, and high-end housing projects. Over time, the
Central Business District (CBD) has greatly expanded.
Massive investment in urban transport infrastructure has
increased suburban residential land use and has contributed to pushing industrial activity toward outlying
urban locations. New mass housing projects have been
built around the fast expanding urban fringes. These
new residential buildings, similar to condominiums in
the United States, are built by real estate developers and
sold to residents.
This paper employs two unique data sets to test the
classic urban monocentric model in a rare setting where
explosive new development is remaking the face of a
city. The first data set, which we refer to as the “land
parcel data set,” includes information on all land parcels
that were leased to developers by the Beijing Land Authority through open auction from 2004 until July 2006.
This data set contains information on each land parcel’s
total price, location, size, and permitted floor-to-area ratio. The second data set, which we refer to as the “housing project data set,” is a transaction database covering
all new housing projects sold in Beijing in 2004 and
2005 that were built and sold by real estate developers.
This geocoded data set is drawn from Beijing’s Housing Transaction Registration System, which keeps the
records of all new housing transaction contracts.
We use these data to provide new estimates of Beijing’s land and home price hedonic gradients as a function of distance to the Central Business District. In addition, we examine how the floor-to-area ratio (FAR)
and population density vary as a function of distance to
CBD. We find that the monocentric model’s predictions
are largely upheld in Beijing.
Beijing is not a featureless plane. Communities differ with respect to access to the CBD, air quality, park
access, crime, local school quality, and access to public
transportation. Building on the US quality-of-life literature (see the survey by Gyourko et al., 1999), we use
the housing transaction database and employ hedonic
techniques to measure the capitalization of local public
goods. Recent home buyers reveal their marginal willingness to pay for local public goods through their location on the hedonic price surface (Bajari and Benkard,
2005; Bajari and Kahn, 2005). We find that public goods
are significantly capitalized into housing prices, indicating that Beijing residents value local quality of life.
Although we find small capitalization effects for crime,
we estimate larger effects for clean air and proximity to
2. A brief introduction to Beijing’s urban form and
our data sets
2.1. A portrait of Beijing’s urban form
Figure 1 shows the Beijing Metropolitan Area and
also displays the spatial distribution of all 920 new
housing projects in our data set. Beijing is spreading
out in every direction. TianAnMen Square and the surrounding traditional hub of commercial, cultural, and
administrative activities can be regarded as the city center. Another area, east and close to TianAnMen Square,
called “JianGuoMenWai,” is the so-called CBD, with a
cluster of high-rise office buildings and many international companies’ headquarters. Throughout this paper
we define TianAnMen Square (TAM) to be the City
Center. The current four ring roads circling TianAnMen
were built successively from inside to outside. They are
an important part of Beijing’s transportation system.
Unlike many cities in the United States, where employment has been suburbanizing (see Glaeser and
Kahn, 2001), Beijing is still quite monocentric, and its
CBD continues to contain a large share of the metropolitan area’s total employment, largely because of the
centrality of various urban amenities, and also because
of the concentration of government activities in Beijing, the capital of China. Over 70% of the metropolitan
area’s total jobs and 65.2% of the total metropolitan
area’s population are concentrated within 10 kilometers
of TAM.2 To calculate the population density gradient
for the Beijing Metropolitan Area, we use data from
Beijing’s 2000 Census. This census provides information on population, land area, and distance to the City
Center for 92 Beijing communities.3 The average density is 18,088 persons per square kilometer (73 persons
per acre). For the 92 communities, we run a conventional equation to estimate the population density gradient:
Log(POPi ) = 10.484 − 0.119∗ DIST i ,
(89.07∗∗∗ )(−8.28∗∗∗ )
R = 0.426
2 In the year 2000, only 33% of New York City residents lived
within ten kilometers of its Central Business District. This fact is generated for the set of census tracts that are within 25 miles of the CBD
and are located in the New York City metropolitan area.
3 Community (“SheQu”) is the basic geographical unit in China’s
population census. Such “communities” are much larger than US census tracts. The average land area of a SheQu is 7 square kilometers
(1730 acres), and its average population is 67,089. We measure the
distance from the community’s center to CBD as DIST i in Eq. (1).
S.Q. Zheng, M.E. Kahn / Journal of Urban Economics 63 (2008) 743–757
Fig. 1. The location of 920 new housing projects in Beijing.
where POPi is the population density in community i
expressed as the number of people per square kilometer, and DIST i is that community’s distance to the City
Center in kilometers. T-statistics are reported in parentheses. The population density gradient is −0.119 and is
statistically significant. This means that a community’s
population density decreases by 12% for each kilometer
of distance from the City Center. This gradient is more
than twice as large in absolute value as the US year 2000
population gradient coefficient of −0.048 per kilometer
of distance from the CBD.4
Within Beijing, high-income residents locate near
the city center (Zheng et al., 2006a). This urban form
seems more similar to European cities than to American
cities, with the exception of a few older US cities such
as Boston, New York City, and San Francisco (Brueckner et al., 1999; Glaeser et al., in press; Glaeser et al.,
2001). The relative centralization of the high-income
residents in Beijing is due to the concentration of highpaying jobs and cultural and consumer amenities near
the CBD.
4 This US estimate is based on year 2000 Census tract data; see
Baum-Snow and Kahn (2005). The regression coefficient mentioned
in the text is based on a census tract level regression that includes
metropolitan area fixed effects.
2.2. Descriptive analysis of housing project data set
The 968 projects in our housing project data set are
all the projects that were supplied on the new Beijing
housing market between 2004 and 2005. Within each
project, there are several residential buildings. Each
building has many housing units, similar to a condominium building in the United States. The average
project in our sample has 791 housing units. A common
phenomenon in China’s housing market, called “presale,” is that developers start to sell the units before
the buildings are completed, or even before construction is started. For developers, the presale is a critical
financing tool. Although developers can borrow from
commercial banks, the capital market remains underdeveloped. Therefore 88% of the projects in our sample
are presale projects. Below, when we discuss the timing
of sales, these dates refer to when a developer started to
sell housing units in the projects on the market, rather
than construction dates for housing projects.
We are confident that our data set, with its complete
coverage of new housing towers, is representative of the
housing units purchased by recent Beijing home buyers. The housing resale market is very thin. Previous
public housing was privatized before 1998 and sold to
incumbent tenants, who had been permanent employees in those state-owned enterprises, at very low subsidized prices. Therefore the owners of the privatized
public housing units are always Beijing’s original and
S.Q. Zheng, M.E. Kahn / Journal of Urban Economics 63 (2008) 743–757
elder residents, and their children. The owners of these
housing units are not able to sell their units freely to
other buyers because of flaws in the property rights law
that limit buying and selling this type of housing stock
(Bertaud et al., 2006). In addition, the immature brokerage industry also limits the development of the housing
resale market. The transaction volume of resale housing units accounts for only 20% of the total housing
transactions in 2005. Beijing workers who did not have
access to an apartment from the previous public housing
regime or did not inherit an apartment from their parents
have few housing options other than purchasing a new
housing unit in one of the projects in our data base.
We exclude projects that had entered the market before 2004 and also the economy-housing projects whose
prices were set by government. After data cleaning, we
have included 900 projects in our analysis.5 Figure 1
shows that our 920 new housing projects are spatially
distributed quite evenly across the whole urban area.
Table 1 provides the descriptive statistics of this data
set. The mean sale price is about RMB 7340 per square
meter (USD 85.46 per square foot), with an average unit
size of 130 square meters. An average housing project
has 791 housing units and is 10.64 kilometers from
TianAnMen square.
2.3. Descriptive analysis of land parcel data set
A necessary first step for building a new housing
project is to acquire the use right of a land parcel from
the Beijing Land Authority. All urban land is owned by
the state in China. Starting in 1988, the Chinese government began to offer long-term leases of land parcels.6
Any party who wants to acquire the land-use right in
the pursuit of profit must pay a lease fee as a lump sum
at the beginning of the lease period.
Before 2004, the conventional way to lease out land
was through negotiation. After 2004, the Chinese Central Government required that all land leases must be
privatized though an open auction process. This switch
is mainly due to the concern that possible corruption
during the negotiations might result in less revenue for
the state. The “Land Reservation Center” (LRC), a department of the Beijing Land Authority, was established
to implement land auctions. After acquiring land parcels
5 We exclude some outliers that may be due to recording errors, such
as those projects whose average unit sizes are larger than 400 square
meters or project sizes are bigger than 5000 housing units.
6 The lease terms are 70 years for residential use, 40 years for commercial use, 50 years for industrial and institutional use, and 50 years
for mixed use.
from rural villages as well as original urban occupants,
and removing the previous occupants, the LRC engages
in such urban land improvements as providing basic
road access and connecting the parcel to electricity and
water. The LRC then puts the land parcels on the market for an open and competitive auction. The developer
who bids the highest acquires the parcel, and local government receives the revenue.
In our land parcel data set, we have all the 145
open-auction land parcels from the start of this auction
arrangement in 2004 until June 20, 2006. In Fig. 2, we
graph their spatial distribution. These parcels are not
limited to residential use. Table 2 presents descriptive
statistics of the variables in the land data set. The average parcel size is 55,940 square meters (13.8 acres).
2.4. Descriptive analysis of local public goods
Given that a large fraction of Beijing workers,
roughly 52%, commute to their CBD jobs using public transit, access to public transit is an important urban
amenity.7 In Fig. 3 we provide an overview of Beijing’s
transportation infrastructure. More than 30 major bus
stops are displayed in the figure.8 Each of these is an
important transportation hub. Today, Beijing has four
subway lines. Line 1 and Line 2 are old lines built in
the 1970s in the central area, with 39 stops. Line 13 and
Line Batong are quite new lines, built in the new suburban areas after the year 2000. Using GIS software,
we have calculated the distance of each new housing
project from these four subways and major bus stops.
We also examined several other local public goods,
including access to core high schools,9 proximity to major universities, safe streets, and environmental amenities. Almost all high schools had been established before the Economic Reform took place in the 1980s.
There is no residential property tax in China. These
schools have been continuously funded by the local government, whose education budget comes partly from the
Central Government and partly from local general tax
7 A survey was conducted by Wenzhong Zhang at Institute of Geo-
graphical Sciences and Natural Resource Research, Chinese Academy
of Science, in Beijing, during August and September 2005. The sample size is 4326 respondents. See details in Zheng et al. (2006b).
8 Local community bus stops are not considered in this study.
9 In Chinese cities, high schools are grouped into two categories:
common high schools and core high schools. The list of core high
schools was determined before the free market reforms and has not
been changed since then. Roughly 15% of Beijing’s high schools are
core high schools. They receive more funding from local governments
and are allowed to set more stringent entry requirements to recruit
excellent students.
S.Q. Zheng, M.E. Kahn / Journal of Urban Economics 63 (2008) 743–757
Table 1
Descriptive statistics of housing project data set (N = 900)
(Std. dev.)
The average price per sq. meter of floor area of the sold housing units in the project (RMB/sq. meter).
The average size of housing units in the project (sq. meters).
The number of housing units in the project, indicating the size of the project.
Binary: project being developed by a state-owned real estate developer.
The distance between TianAnMen Square and the project (kilometers).
The distance from the project to the closest subway A (Line 1 and Line 2) stop (kilometers).
The distance from the project to the closest subway B (Line 13 and Line Batong) stop (kilometers).
The distance from the project to the closest main bus stop (other than a subway stop) (kilometers).
The distance from the project to the closest park (kilometers).
The distance from the project to the closest core high school (kilometers).
The distance from the project to the closest major university (kilometers).
The entry score of the closest university in the 2005 National University Entrance Examination.
Binary: project within 3-kilometer distance from a university.
Binary: project in a high-crime-rate area.
An indicator of air quality, noting the concentration of PM10 in air
(see text for detailed explanation). (µg/m3 ).
Binary: located in the first quadrant (Northeast).
TianAnMen as the origin point.
Binary: located in the second quadrant (Northwest).
TianAnMen as the origin point.
Binary: located in the third quadrant (Southwest).
TianAnMen as the origin point.
Binary: located in the fourth quadrant (Southeast).
TianAnMen as the origin point.
Binary: project entering market in the first quarter in 2004.
Binary: project entering market in the second quarter in 2004.
Binary: project entering market in the third quarter in 2004.
Binary: project entering market in the fourth quarter in 2004.
Binary: project entering market in the first quarter in 2005.
Binary: project entering market in the second quarter in 2005.
Binary: project entering market in the third quarter in 2005.
Binary: project entering market in the fourth quarter in 2005.
S.Q. Zheng, M.E. Kahn / Journal of Urban Economics 63 (2008) 743–757
Fig. 2. Spatial distribution of land parcels in Beijing.
Table 2
Descriptive statistics of land parcel data set (N = 145)
Mean (Std. dev.)
The price per square meter of the auctioned land parcel (RMB/sq. meter).
The size of the l …
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