The supply of land and real estate prices
|Keywords||Land supply price of real estate expectations under uncertainty optimization model dynamic price model|
The price of real estate in China has been soaring all these years and thrusts negative impact on the development of the economy as well as public’s welfare. At the same time, the central government makes great efforts to regulate the real estate market in order to beat down the price. However, the macroeconomic regulation seems to fail whatever measures the central government adapts. This contradictory phenomenon triggers us to analyze deeply what drives the high price of Chinese real estate. The author believes that demands resulting from urbanization、investment and speculation are important drivers, but they are not the ultimate key influential factors. Actually the essential driver is the present land possession system, that is, government’s strict control on land supply is to blame for the high price of real estate.Firstly, this paper firstly analyzes various factors that affect the price of Chinese real estate and verifies the channels of how the land supply influences the price. The Granger Causality Test is also conducted in this part to ensure the relationship between land supply and price of real estate. Secondly, this paper tries to prove the foregoing view through two models--the optimization model of buyers and the dynamical price model. In the optimization model, the author introduces Geometric Brownian Motion to describe the expectations under uncertainty and by the use of Optimal Stopping method solves the equation, and demonstrates how the land supply expectations affect the price of real estate. In the price model, this paper depicts dynamically how the land supply and price of real estate relates by changing the land supply parameters of Supply Functions. Finally, the conclusion is arrived and proper policies are proposed in the last part of this essay.The innovations of this paper are embodied in two aspects:on one hand, the author introduces Geometric Brownian Motion to describe the expectations under uncertainty and proposes a feasible dynamic programming technique to solve the equation. Besides, the author performs comparative static analysis on different land supply expectation scenarios. On the other hand, this paper conducts analogue simulation of real estate market through the parameter adjustment of the dynamical price model.