Backward-bending new housing supply curve: evidence from China

This paper tests the existence of a backward-bending housing supply relationship in China, and estimates price elasticity of new housing supply for 35 major Chinese cities. Based on the panel data model of 35 cities, it is found that the response of housing supply to price change is relatively insensitive in China, and the supply elasticity has decreased with the rise in housing price. As a result, the remarkable increase in housing prices in China can be at least partly attributed to the inelastic housing supply. The results from this paper may inform Chinese government to take effective measures to reduce the large amount of idle land so as to increase the supply for the housing market