In China, large-scale urban village transformation has profoundly influenced the residential sustainability and interests of indigenous villagers. Local governments have widely adopted a demolition/relocation market-oriented model (D/RMM) for transformation of most of the urban villages (UVs) in China. During the D/RMM process, the interests of indigenous villagers have generally suffered to a certain extent. Originally, the new rural construction model (NRCM) was only used to improve rural development and sustainability. However, it has now occasionally been applied in the UV transformation process to safeguard and guarantee the interests of the village collective and villagers. Given the considerable difference between the two transformation models, we explored the sustainability and impact mechanisms of residential landscapes in terms of housing condition sustainability, community environment sustainability, and livelihood sustainability, through the cases of Beimiantan New Village (BNV) with NRCM and Xiaoyantan Village (XV) with D/RMM in Lanzhou, Gansu, China. The research findings reveal the differences in institutional design and social influence, and changes in the redistribution of benefits between the two transformation models. Overall, the residential sustainability of NRCM is higher than the D/RMM’s. Meanwhile, the influence factors in the residential sustainability of the two transformation models can mostly be attributed to three aspects: (1) Land development rights allocation models and earning redistribution fundamentally affect villagers’ housing condition sustainability; (2) The collective economy and the informal economy are the potential drivers of sustainable village community transformation; (3) Informal institutions and village social networks protect and continue the social capitals in village. Specifically, the NRCM in BNV has the following advantages in improving residential sustainability: (1) Collective land assets can be further activated; (2) Villagers’ vested interests are largely safeguarded; (3) The main role of social low-rent housing and informal employment places in the original village is optimized to a larger extent; (4) The original villagers’ social networks remain stable and intact. In summary, villagers’ rights are maintained and enhanced via informal institutions, informal economies, and original social relationship networks are completely preserved through NRCM in BNV, as much as possible. Therefore, NRCM can maximize the villagers’ interests, that may be conducive to residential sustainability in the transformation of China’s urban villages.
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