In the vast rural areas of China, there exists famers’ recessive land occupation behavior against relevant laws and regulations, such as one household having several residences, one person having one house, building new houses without relocating from existing ones, and occupation exceeding approved amount of land, which have negative effects on the new-type urbanization and urban-rural integrated development. With farmers’ recessive land occupation behavior as the starting point, this article discussed the causes of farmers’ recessive land occupation behavior and the policy orientation of relevant pilot reforms from the perspective of homestead functional property change. First, through reviewing the change of homestead planned distribution system and homestead functional property, this study found that the existing homestead planned distribution system established on the basis of residential guarantee property cannot adapt to the reality of the weakening residential guarantee property and the highlighting of asset property. Then the article depicted how farmers break the limit of planned distribution system through recessive homestead occupation using a theoretical model and based on actual situations. Last, through examining the policy documents of some homestead reform pilot towns, this study found that the on-going pilot reforms are carried out in the two dimensions simultaneously, that is, “maintaining the residential guarantee property of homestead” and “adapting to highlighting asset property of homestead.” In addition, the former has clearly been favored and valued by pilot towns but the reform of the latter seems in a difficult situation. Only by considering both the residential guarantee property and the asset property of homesteads of farmers, we can achieve the effective management of farmers’ recessive land occupation behavior.