Stability Is Key to a Healthy Housing Market

The Central Economic Work Conference which took place in December 2016 pledged to curb real estate bubbles.“Houses are built to be inhabited， not for speculation，” said a statement issued after the statelevel policymaking meeting. Moreover， the government plans to use a variety of methods to establish market-oriented and long-term mechanisms which suit conditions in China in order to prevent erratic market fluctuations.

Stability is key to establishing these mechanisms as soon as possible， and to keep them running in the long term. Related policies must be stable， continuous and consistent.

Real estate used to be a pillar industry in many regions because of its high investment returns and fast capital turnover rate. But the industry has also faced many problems. For instance， some local governments are highly dependent on revenue from land sales. Also， housing prices have soared because of a surge of speculative purchases by individual buyers. Currently， a number of middle- or low-income people cannot afford homes or have to pay inordinate amounts of money to buy a house. Worse still， some local governments—fearing that the economy might be pulled down by a cooling real estate market—relaxed， or adjusted， existent regulatory policies shortly after the previous round of price hikes had ebbed. As a result， housing prices in some large cities started to grow once again.

Past experiences and lessons indicate that the government must uphold a long-term perspective and maintain stable policies to ensure the sound development of the real estate industry. It must also pay attention to current market conditions and make related policies work in accord with each other.

First， there should be mechanisms to distinguish real housing demand from speculation. Because of large-scale speculative purchases based on high leverage ratios， the inelastic demand for housing in society has not been met satisfactorily. Therefore， regulatory efforts must focus on ensuring that houses are built to be inhabited. If current policies are effective in curbing the fast housing price surge， restrictions on purchasing can be relaxed in the future， but mortgage restrictions should be maintained. The government should also impose stricter resale restrictions in order to prevent further speculation. It must also conduct research to create a feasible and fair property tax scheme.

Second， housing market regulation should take into consideration both new houses and secondhand homes. For years， many local governments have only focused on increasing supply， leading to a large amount of unsold homes in some small and medium-sized cities. Meanwhile， the enormous demand in large cities cannot be satisfied effectively. To address this problem， various local governments should conduct in-depth investigations or special surveys if necessary to find out the actual conditions of property inventory. Following that， the government should make appropriate plans for urban development， population control， as well as housing supplies.

Third， the relationship between housing and land supplies should be studied. Some people believe that soaring housing prices in large cities are caused by an inadequate supply of land， assuming that prices will decrease if the government increases the supply of land for residential development. However， due to unavailable demand data， as well as high leverage ratios in the market， blindly increasing land supplies is just likely to make large cities repeat mistakes made in some small and medium-sized cities. To address this problem， the government must first have an accurate forecast for housing demand， and then plot an appropriate amount of land for residential development throughout different periods of time. The plan should also take into consideration the reconstruction of shanty areas and dilapidated houses in order to reduce excess supplies of land.

Fourth， it needs to correctly understand the role of the real estate industry in economic development. The real estate industry is very important for the national economy， but it is only one source of overall growth. Excessive dependence on the real estate industry and revenue from land sales is definitely detrimental. Local governments should develop new economic growth engines which suit local conditions in order to boost economic restructuring and upgrading.