Optimizing land allocation for affordable rental housing: Lessons from Shanghai's R4 land policy

China's underdeveloped rental market has contributed to elevated housing prices and increasing affordability challenges. To address weak incentives for rental housing development arising from extremely low rent-to-price ratios, the Shanghai government introduced a dedicated land category (R4) in 2017, offering land exclusively for rental housing at significantly discounted prices to lower development costs and stimulate supply. This study investigates the allocation pattern of rental-designated land parcels. Despite a mild tendency toward peripheral areas, R4 parcels are generally well-located, close to subway stations and employment opportunities. Using a revealed-preference approach, we quantitatively compare the liveability of different residential land types and find that rental parcels are comparable to, or even superior to, those for sale housing. These findings reflect a deliberate effort by local governments to promote spatial equity in affordable housing provision. However, this achievement entails substantial fiscal costs. Each R4 parcel incurs an average opportunity cost of 1.1 billion CNY, raising concerns about the policy sustainability. Successful and sustainable housing security requires further optimizing land allocation based on the relative suitability for rental versus ownership housing, as well as renters' heterogeneous preferences across submarkets, to reduce opportunity cost and improve land-use efficiency.