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!