Institutional Analysis Of Market-Led Residential Development In Shenzen: A Transaction Cost Perspective

The acute land scarcity in built-up areas and the strict regulations of land conversion on the urban fringe in the major cities in China highlight the importance of urban redevelopment for continuing urban growth. In Shenzhen, a novel mechanism was established to motivate the market sector and further facilitate the implementation of residential redevelopment. The local government’s role is changed to focus only on policy making and project approval whilst developers and the residents directly negotiate for compensation plan and transfer of land use. Public participation of the affected residents is specified to share the interest of the redevelopment project. However, the institutional change led to unexpectedly low efficiency for the dilapidated residential redevelopment. Among the eight experimental residential redevelopment projects, only one succeeds while other seven are at a standstill of different stages. This paper uses the transaction cost framework to trace the relevant transactions and identify the transaction cost generating factors in the residential redevelopment process. The deficient efforts of property rights confirmation, the low participating threshold of the developer, the insufficient participation of residents in the planning-making process, and the absence of government intervention are responsible for the poor institutional performance. These findings contribute to the establishment of alternative institutional arrangements to facilitate urban redevelopment in China.