housing market

[jbradfor]

So you're saying prices derived through supply-and-demand are unreasonable? What, in your opinion, would be reasonable prices then?

Yes. Prices are often "unreasonable". Stocks can be "unreasonable" relative to the company's underlying value, e.g. its free cash flow. Houses can be "unreasonable" relative to the rental market.

That may be so but it's not more stupid than, say, buying shares in a company which pay no dividend but whose price has been rising for ages.

I don't buy stocks for the dividends. I buy them for their underlying value. A stock can pay no dividend, has been appreciating, but still a good value. Same for houses. And for houses, their underlying value is based a lot on the rental market.

I honestly think it'll do whatever it has to. It's hard to imagine a scenario that brings about widespread urban discontent nowadays, but a housing market crash seems to me to be one of the more likely possibilities. The Party's legitimacy is now based on increasing affluence, and a huge of amount of affluence is tied up in property.

I agree. But what is it that they can do?

[Guest realmayo]

I don't buy stocks for the dividends. I buy them for their underlying value

By which it seems you mean: you hope their value will go up in the future and you'll be able to sell them for more than what you paid for them, while being content to realise no income from them in the short-term. Seems exactly the same as people buying appartments with no intention of realising rental income, just waiting for capital gains. Doubtless works fine unless you get inflation or prices fall or there's a liquidity squeeze. But as long as prices are guaranteed to keep going up until just after you sell, no problem! :mellow:

[gerri]

Trouble seems to be that the dual nature of housing is all-too good at representing the income gap: Prices are so high because of people who are rich investing their money in property, and ordinary folk are hard-pressed to afford housing.

Hence, when Roddy says that the gov't would do whatever to avoid urban discontent, the question is which discontent would erupt first: Rich people who fear losing their money if property values start going down, or poorer people increasingly unable to afford housing if prices continue to go up?

(Add to this that housing is all about settling down, having a chance to have a family, and you're in for a total sh.tstorm...)

[roddy]

The government is at least trying to (or trying to appear to be trying) to help out at the 'can't get on the ladder' end - see 廉租房 and 经济适用房, etc. I guess what they've got to do is keep wages increasing faster than house prices and then everything will work out eventually, but . . .

And policies to encourage people to stay in second and third tier cities might help.

[gato]

I agree. But what is it that they can do?

There are many things that can be done.

For example, if you want to help sellers of housing (generally wealthier), you could:

reduce supply of housing, by:

• reducing supply of land available for development,
  
• changing zoning rules to require / encourage lower-density development
  
• creating barriers to slow down construction and slow sale of new and existing housing
  

and/or increase demand, by:

• making ownership of housing a requirement for hukou (residency) and admission of children to better schools;
  
• increasing availability of loans (which increases demand but also helps buyers)
  

If you want to help buyers / renters of housing, you could:

increase supply, by:

• making more land available for development,
  
• changing zoning rules to require / encourage high-density development
  
• having government fund construction of moderate-price rental properties (public housing),
  
• starting to charge property taxes (which would reduce purchase for investment and increase rentals;
  
• exemption could be provided to low-income properties owners)
  

and/or decrease demand, by:

• taxing short-term capital gain earned on sale of housing (currently exempt from tax, would reduce purchases by speculators),
  
• increasing development of "second, third-tier" more affordable cities (making it less necessary for everyone to rush to Shanghai, Beijing, Shenzhen, etc.
  

[Outofin]

Land, construction permits, schooling, etc, are controlled by local governments. Central government has direct say on banking. Tax system is negotiated between the central and the local. I think the central has the upper hand in the game since the years of Zhu Rongji.

The conflicted interests between the central and the local shape many policies and their results.