Summary. In a recen t study, Peng and W heaton empirically exam ine the effect of restricti ve land supply on Hong Kong house prices. However, we argue that the im pact of the supply of new land by the Hong Kong govern m ent is not as importan t as they m aintain in accou nting 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 govern ment acts to maxim ise land reven ue. Maxim isation of reven ue from land sales is, however, consisten t with the ef ® cient allocat ion of resou rces. We also show that the amount of land sales by the govern ment and land in develop ers ’ land banks ten d to decrease when mark et interest rates increase. Land banking behaviour is govern ed by economic conditions. Long-term land holding costs should cover interest costs
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