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Analysis of the causes of China’s High Housing Price

“The high point of stalemate, high hanging and not falling” is the trait of China’s housing prices, that is, China’s housing prices rushed up in 2009 and then hung there and rarely decreased. The root cause of this situation is that the imbalance between supply and demand in China’s real estate market makes it impossible for traditional price mechanisms to play their role in regulating the economy in the Chinese market. The root cause of this situation is that China’s land supply cannot be determined by the market, which leads to an imbalance in the supply and demand of the land market, which in turn affects the balance of supply and demand in the real estate market. Under the influence of speculative demand and rigid demand on people’s expectation of continued real estate growth in the future, China’s housing prices have formed such a high stagnation situation.

To study the reasons for this situation in the real estate market, we must first consider the characteristics of real estate as a commodity, which is the most basic reason why housing prices can rise so high. Secondly, we should proceed from the two essential market factors that affect the real estate market price, and discuss what causes the imbalance of supply and demand in the real estate market in China’s real estate market. What is the reason for this alienation? Analyze the reason why the price mechanism can’t play its role in market regulation, and then deeply analyze the formation mechanism of China’s high housing prices.

  • Real estate characteristics

The unique nature of real estate compared to other physical goods makes the price changes in the real estate market unique. The characteristics of real estate include:

  • Since the house and its ancillary facilities are built on the land and the land is permanent, this makes the house and its ancillary facilities very long-lived.
  • Short-term lack of supply flexibility. Real estate goods are built on the land. Due to the limited and scarce stock of land, in the long construction period of the real estate market, the short supply of the land market is insufficient, which makes the short-term lack of flexibility of the land market, and ultimately affects the price of the real estate market. There has been a short-term rapid rise.
  • Under the influence of the location economy, in theory, every inch of land has different prices and different prices, and real estate goods built on the land have this heterogeneity.This heterogeneity makes each area of real estate goods have different prices, and this different price will ultimately affect the rent level and occupancy rate between two different buildings. This makes the price gap in the real estate market bigger.
  • Supply factor

In the market economy, house prices are affected by supply and demand. We first analyze the impact of supply factors on house price increases. In the analysis of economics, supply exceeds demand and will cause the price to fall. Supply less than demand will cause the price to rise. Only supply and demand balance can bring the price back to the true level and reflect its true value.

  • Demand factor

From the history of the development of the world economy, we can see that with the development of the economy, housing prices will inevitably rise. In the basic law of the market economy in which supply and demand determine prices, once there is an imbalance between supply and demand, the price will definitely break away from the normal level. China’s real estate market generally presents a situation of short supply. With the development of market economy, the pace of urbanization is accelerating, and the demand for housing is increasing. This situation of oversupply is becoming more and more obvious, and house prices will continue to rise. In the analysis of the reasons for all parties, the author believes that the following three aspects of demand are the most important.

  1. Rigid demand for housing caused by urbanization

Most of China’s urbanization process is achieved through the acquisition of rural land. After the farmers are requisitioned, they will flood into the towns. Another part of the rural residents will become urban residents by going to college and buying houses in the city. After the reform and opening up, due to the abolition of population mobility restrictions, many rural people began to go out to work. The influx of rural population and migrant workers, which were converted from land acquisition to the urban population, caused a large increase in urban housing demand and a rise in housing prices in large cities. The direct reason is this.

  1. Demand for improved housing conditions

After the marketization of real estate, with the improvement of people’s living standards, the commercialized housing location, living conditions, and environment are better than the allocated housing. People can choose according to their own needs, which makes people who are not satisfied with the allocated housing to pursue commercial housing. The demand for the second housing and the demand for the first housing by the foreign population constitute a common demand in the urban real estate market. This is another aspect of the rigid demand in the real estate market, and demand in this area has also increased the total demand, resulting in an unbalanced rise in housing prices.

  1. Speculative demand from rising house prices

The development of the market economy has made many people have spare cash, but due to the imperfect capital market, people lack investment projects, and many people have started investing in real estate on the basis of expected price increases. As investors continue to increase, house prices continue to rise, and more and more people join. However, investment behavior does not bring about a real increase in social wealth. On the contrary, because of speculative demand, housing prices are getting higher and higher, and real estate bubbles are getting bigger and bigger. In the financial crisis of 2008, the government invested a large amount of money into the market. However, due to the narrow investment channels, many funds poured into the real estate market, which further increased the price of the real estate market.

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