What is the Root of High Housing Price?

Author: Fan Gang, President, CDI

Editor’s Note: Although the real estate market has gone through a tortuous development process, there still remains a huge potential. So how can the real estate industry realize sound development?

Why is there high housing price? Because there is high price of land auction and the land price is derived from the real estate price. The expected housing price in the area in the future is higher than the present will lead to higher land prices. If the government does not interfere and lets the market continue to overheat, it may lead to a crisis. So how can the real estate industry realize sound development?

Firstly, in terms of demand, an automatic stabilizer, namely, house property tax is needed. If there is an automatic stabilizer for the demand side, administrative measures are not necessary since taxes and leverage can automatically play their roles in stabilizing the real estate industry.

Secondly, in terms of supply, correct the deviation of the urbanization strategy. Current policies mainly focus on encouraging the development of small towns and cities and limiting the development of large cities and it causes excessive land supply in small cities. However, over the past three decades, most of the population migrated to large cities, indicating that our land policies have not kept pace with the law of population migration and urban development.

Thirdly, to solve the real estate problem from the root is to solve the issues of strategies and systems rather than to ascribe the real estate problem to monetary issues. We should change some of the past strategies and policies and gradually withdraw administrative measures to promote the steady and healthy development of the real estate market.