Housing Price Controls in China

According to Bloomberg:

Premier Wen Jiabao said on March 5 that China will “resolutely” press ahead with controls on the property market to curb speculation, reiterating a promise to keep housing affordable. The government will “severely punish” irregularities in the real-estate market, implement differentiated credit and tax policies, and hold local officials accountable for maintaining stable home prices, he said.

First, given China’s history, I shudder to think what it could mean for the government to “severely punish” someone or something for a market irregularity.

Second, are price controls really the best policy prescription for any market?  Now I understand that politics in China has already heavily distorted the allocation of resources (making housing more attractive in the first place as a store of value), but doesn’t this just continue to distort the market simply in another direction?   And isn’t it possible that the controls will increase evasion and corruption?  Or lead to the opposite of what the government says it wants (how will checking prices actually lead to the higher supply that really works to reduce or check price rises given steady or growing demand?)?  But maybe China’s housing market is so distorted by government policy in the first place that this is necessary (I doubt it).  

I’m guessing that the Chinese government is really more worried about slowly getting a handle on the housing bubble rather than affordable housing.  And the best way to do that isn’t through further government distortion of the market but to open up other realms of safe, legal investment so that housing isn’t seen as a store of wealth (and an inefficient one at that) but a place to live.  

I’m generally skeptical of trying to interfere with prices – especially given how useful they are as an efficient transmitter of local knowledge (HT: Hayek).  So China, increase economic freedom to get out of the problems you’ve created through government action and don’t extend any further the reach of the distortionary tentacles of the state!

9 thoughts on “Housing Price Controls in China

  1. That’s the housing bubble I’m talking about — where empty apartments are holders of value. Like gold dug up in Australia, shipped to Fort Knox, and buried — a waste of resources (to paraphrase Uncle Miltie). This is the problem with a commodity standard, and it holds with houses created as private money too!

  2. I see. Even if you’re holding the stock as a store of value, though, it doesn’t make sense to me why you wouldn’t rent it out and try to get a conventional return on it as well. Price ceilings should be unnecessary to drive down prices.

  3. Would you drive your car if cars were currency? Or play with your baseball cards if they were money and the condition mattered to the value? Maybe, maybe not depending on the opportunity cost, risk, etc.

    1. Yeah, but those are pure consumption activities. If you just charge people more for the degradation of the property, you could still make out just fine, it seems to me.

      1. I gotcha. So what explains the lack of tenants – demand (which means prices for other housing shouldn’t be so high as is claimed or the housing is in the wrong areas or something else??) or supply (for one reason or another, people are reluctant to rent their places or something else???)???

  4. “I’m generally skeptical of trying to interfere with prices – especially given how useful they are as an efficient transmitter of local knowledge (HT: Hayek).”

    Plenty of Homeowners and Private Label Mortgage securities traders might disagree with that.

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