This study contributes to the understanding of the relationship between Chinese local
government debt and house prices by proposing the land channel as a novel explanatory
framework. We construct a three-sector equilibrium model and demonstrate that local
government debt positively affects house prices through both direct and indirect effects,
with the indirect effect operating through the land market. However, the land use
efficiency mitigates the positive effect of government debt on land and house prices
within indirect effect. These propositions are empirically confirmed using a panel
dataset of 260 cities in China from 2011 to 2019.