At the beginning of 2020, Chinese cities have experienced an unprecedented jump in housing prices. Guangzhou has already seen an 8% increase in January, the biggest monthly rise in two years, and the average house price in the First Tier cities has risen above 4,000 yuan per square meter.
The rebound of housing prices has caused embarrassment for the Chinese government. After the Covid-19 pandemic broke out in 2020, the Chinese government introduced a series of strong measures for the real estate industry, such as stricter rules for pre-sale housing development, increased land supply and increased borrowing costs. But the rebound of house prices has shown that these policies are difficult to implement and have limited effect.
The high housing prices reflect the ongoing imbalance between urban and rural areas, low income and high expenditure. Countries with high housing prices tend to experience a large percentage of their income going to housing, leading to a decrease in private consumption or savings. The average Chinese family now spends nearly 50 percent of their income on housing expenses.
The central government has responded to this rebound by introducing additional stringent house-price measures, such as implementation of property tax, improving house price-control policies, tightening purchase and financing restrictions, using big data to target speculators, and increasing the amount of land available for development. But further implementation of these measures seems to be beyond the current policies and their effect on the market is still limited.
Although these measures aim to cool off the overheated prices, the rebound of house prices does show a very deep imbalance between income and expenditure in first-tier cities. The housing problem cannot be solved in the short-term, and it may become a very disruptive issue that endangers social stability. For this reason, it is of utmost importance to further implement policies that aim to narrow the income gap and reduce inequality between urban and rural areas.
It is also important for the government to invest more in public rental housing, providing public housing for people with low incomes, those who are not eligible for home ownership, and those who dont wish to buy property. Enabling these people to access decent housing would be beneficial to both their quality of life and the citys social and economic development.
The Chinese government must continue to fine-tune their policies and maintain a proper balance between cooling housing prices and preventing an economic downturn. Their long-term goal should be to raise the standards of living in the cities, reduce income polarization, and improve the prospects of Chinas economic recovery. Implementing these measures will have a substantial, lasting effect on Chinas economy and the lives of its citizens.