Why build more to earn less: Property right implications of urban villages

Two main types of land ownerships can be identified in China mainland - the state ownership, and the collective ownership by village communes. Originated from the collective land system, the urban village is a special phenomenon. It is distinctively different from other non-village urban developments for its incomplete and ambiguous property rights and a general lack of effective building regulations and control. During the rapid urbanization of China in the past 30 years, state owned lands were sold and developed into high-density residential or commercial built-ups. Many of them were built literally surrounding existing rural villages. The surrounded villages are then called urban villages, for they are villages inside cities. Restricted by the obsolete but still effective collective land ownership, urban villages are generally not allowed to be developed unless for self-housing purpose exclusively by their inhabitants, the villagers. Yet encouraged by the high profits of the surrounding development projects, the vague definition of the "self-housing" restriction seems not able to prevent the villagers from adding more construction illegally. The truth is they build at densities even higher than those on state owned lands. By now, the political problems of these illegal developments have become too large to be handled by local city governments. As we now see, urban villages with high-density built-ups can be seen everywhere inside many Chinese cities. Very often, these villages represent a real world paradigm of overbuilt environments with higher density, poorer living conditions, and lower economic performance. This paper traces the history of this development and empirically identifies that approximately 70% of the urban village examples considered in Shenzhen, Guangzhou, and Xi'an have overdevelopment problems. We then try to induce property rights implications on excessive land exploitations, in the absence of effective building regulations and control.