Housing Price, Land Supply and Revenue from Land Sales

In a recen t study, Peng and Wheaton empirically exam ine the effect of restricti ve land supply on Hong Kong house prices. However, we argue that the impact of the supply of new land by the Hong Kong government is not as important as they maintain in accounting for the volatile house prices in Hong Kong. We show that there is no causal relation ship between land supply and housing prices. Our estim ations, based on the annual data of Hong Kong’ s public land sales, ® nd that the government acts to maxim ise land revenue. Maxim isation of revenue from land sales is, however, consisten t with the ef® cient allocat ion of resources. We also show that the amount of land sales by the government and land in developers’ land banks tend to decrease when market interest rates increase. Land banking behaviour is govern ed by economic conditions. Long-term land hold ing costs should cover interest costs.