This paper investigates the equilibrium adjustment mechanism of new housing construction in urban China after the 1998 housing market reform. This analysis is based on a panel of 35 metropolitan areas over the period 2001–2015. The new housing supply function is specified in terms of changes rather than levels to capture the disequilibrium state of the Chinese housing market. In addition, current, one-year and two-year lags of the controls are used to capture the impact of the state control of construction land permits (Land Regulation Act). The main outcome is that new housing construction in the metropolitan areas under study responded to market signals but with relatively long time lags. In particular, during the period 2007–2015, new housing construction positively responded to the one-year and two-year lagged changes in housing prices and construction land supply, negatively responded to the current, one-year and two-year lagged changes in the interest rate, and negatively responded to the one-year lagged changes in construction material costs. The main conclusion is that China’s housing marketization has started to work, although it is still subject to its historical footprints and typical Chinese characteristics, notably state control of the construction land supply.