It is an overriding principle in economics that the one who bids the highest price purchases the goods on sale.
In the case of the housing market in China, however, the price is burdened with so much non-economic considerations.
It is useful to look at the issue in light of economic logic and the reform experiences China has accumulated in the past two decades.
Housing prices have become what call a "political" issue as the price is not only increasing rapidly but the absolute value is high in many parts of the country as well.
Across the whole country, the growth rate of housing prices was 14.4 percent last year, and it would require saving for 13 years for a typical household of three people to purchase a 70-square-meter apartment.
It is not surprising that the spiraling price has been a target of criticism.
To be sure, many points of the critical voice stand on good reasons, but some may not.
For example, some people argue that the ratio of housing price to income in China is much higher than the range of 5 to
This argument begs two questions: Whether the high income of non-local residents should be included, and whether the ratios are internationally comparable for commodities other than real estate.
Some others criticize the real estate industry for its amazing profit margins.
But what's wrong with a high profit rate, if the industry is fair and open to all?
Still others complain about a high housing vacancy rate, which they believe is a sign of speculation.
According to The New York Times, one-sixth of luxury residential real estate in Shanghai, a quarter in Beijing and a third in Shenzhen are vacant.
However, it is difficult to distinguish speculation from investment.
What, then, has propelled China's housing price to grow so fast in the past few years?
On one hand, there is strong demand for housing. This is partly pushed up by foreigners living in China and high-income Chinese who want to invest in places other than where they live.
It is a natural consequence of reform and opening-up for a given city or area to see its housing market influenced by the purchasing power of non-local residents.
On the other hand, the supply of real estate has been insufficient due to extremely strict land control since April last year.
When supplies are short, high-end demand is met first.
A short review of certain goods other than real estate may help shed light on why prices can fluctuate not just on purely economic grounds.
In the 1983-86 period, there was an attempt to prevent the pork of Jiangxi Province from being transported to Guangdong Province. The latter was richer and would pay higher prices for the pork.
Now nobody treats pork as an important "political" issue, because the market has solved the shortage problem.
The story indicates that short-term regulatory measures on the housing market are understandable, but they should be designed to avert serious long-term consequences.
http://www.shanghaidaily.com/art/2005/09/12/184983/High_housing_prices_a_delicate_issue.htm
