Macro control tools and the effectiveness on housing price in China

Abstract

In the passing 20 years, China’s urban housing market has been experiencing a rapid development period. As an essential pillar industry, the housing sector drives the development of over 60 industries and even contributes dramatically to the whole economy. The rapid development pace of the housing sector is mainly due to the rapid growth of the investment in housing industry, which leads to the significant rising of land price and housing price. However, the housing market is special compared with other markets. The unique characteristics of housing determine the housing market embodies its own special characteristics. Both of the special characteristics lead to the phenomenon of the simultaneous existing of market failure and policy failure. Hence, it is of great importance for the government to intervene in the housing market to achieve the policy goal of sustainable social development and equity chance of home ownership. Generally, there are 4 types of control tools that the government could take to regulate the housing industry, namely financial tools, fiscal tools, land policy and administrative policy, the mechanism and effectiveness of which is largely differentiated from each other. Firstly, as a capital-intensive industry, the supply and demand of housing are inseparable from financial support. The impact of financial policy on housing market is achieved by means of deposit rate and loan rate. However, since the financial tools is more obvious on housing supply and the expectation that continuous growing of housing price of residents is strong, the effectiveness of the financial control tools is not obvious on controlling the housing price. Secondly, fiscal policies, mainly tax, have an impact on the housing market, but there is a certain amount of time lag of the control tools of tax no matter in the regulation of the structure of housing market or in the regulation of the supply and demand of housing. The effectiveness of tax is obvious since it directly affects the cost of the developers and the buyers. Thirdly, land policy affects the housing market by controlling the amount of land supply or arranging different land uses to inhibit or encourage housing demand. However, from the practical effect of land policy on the control of housing price, the actual result is relatively poor because the land price doesn’t effectively control the housing price. Finally, administrative policy is the special characteristic of macro-control tools in China, and affects the housing market by controlling the development and transaction process. The effectiveness is direct and manifest but differs among the districts. Overall, due to the low efficiency of the government, the administrative interference in the housing market did not achieve the expected market reaction. The analysis of the macro control tools and the effectiveness on controlling the housing price in China could provide enlightenments for the further making and implementation of housing control tools.