By Wu Yue General Secretary Xi Jinping proposed in the report to the 19th National Congress of the Communist Party of China that we should "adhere to the principle that houses are for living in, not for speculation, accelerate the establishment of a housing system with multiple entities supplying, multiple channels providing support, and both renting and purchasing, so that all people have a place to live." This is a scientific positioning of the basic attributes of housing and China's housing market based on China's national conditions and the lessons learned from housing policy explorations and practices. The report to the 19th National Congress also outlined the basic framework for China's long-term housing development mechanism. Although the state has always taken regulatory measures, the fact is that housing prices have never fallen. Regarding the strange phenomenon that housing prices have been rising instead of falling, Ren Zhiqiang, a real estate tycoon known as "Ren the Big Mouth," bluntly stated in previous years: "Real estate should be a high-profit industry"; "For the truly rich, housing prices are not high enough"; "Prohibiting speculation in housing is unconstitutional"; "Don't let the poor afford commercial housing"; "I have no responsibility to build houses for the poor; real estate developers only build houses for the rich," and a series of rude remarks. Ren Zhiqiang's direct arrogance that strongly provokes the poor inevitably touches the nerves of those who cannot afford housing, thus causing public outrage. However, on reflection, the reason why "Ren the Big Mouth" is so arrogant is that there are indeed some points worth pondering. Here, I cannot help but explore the reasons behind the continuous rise in housing prices, and I believe two factors cannot be ignored: Theory and practice often diverge. From the housing development experience of various countries, low-income housing is a headache for Western governments. Since the commercial housing market cannot effectively provide low-income housing or low-priced housing, governments of various countries generally need to provide a certain amount of affordable housing or low-priced housing to supply to low- and middle-income groups. In theory, the commercial housing market has a "filtering mechanism" that can improve the housing problems of all income groups while the rich buy houses. This "filtering mechanism" means that after the rich buy better commercial housing, they will sell their original housing to those with slightly lower incomes. The person who takes over will then sell their original housing to even lower-income people. Through this layer-by-layer transmission, one new housing supply can improve the housing level of everyone in the second-hand housing sales chain once. However, the ironic fact is that after the rich buy better housing, they do not sell their original housing, and even if they do, the price is high. Some even do not rent it out. Thus, as the income of the rich grows, they hold more and more housing assets, while the housing conditions of the poor have not been effectively improved. Why does the seemingly beautiful "filtering mechanism" fail? The big reason is that land and housing have become more of a financial asset and a symbol of wealth. They are first used for speculation or hoarding for appreciation, rather than for living. This phenomenon is more prominent in megacities.
Land prices are the hidden driver of housing prices. On July 23, 2017, at the 17th Annual Meeting of the Boao 21st Century Real Estate Forum, Ren Zhiqiang, who was not present, delivered a speech via recorded audio. He said that the national average land price is close to the average housing price, and in some areas, land prices are even higher than housing prices. In this case, land will only push housing prices further up. He analyzed that according to the land indicators published in the second quarter, land costs are continuing to rise. Many cities restrict housing price increases, but have never introduced policies to restrict land price increases, which will be transmitted to housing prices. According to the National Bureau of Statistics data in June this year, the national average housing price index is very close to the average land price index, which shows that housing prices are simply not enough to cover land costs. The eastern region is basically developing without profit or with low profit, and housing prices in the west, northeast, and other places are lower than the national average land price.
"Under such circumstances, do you think housing prices will rise? Or fall? With land prices soaring, will housing prices drop rapidly, or collapse, or will the bubble burst?" Ren Zhiqiang said, "From the perspective of land, this has become a necessary condition for pushing up housing prices." Ren Zhiqiang's statement may also be an important factor why the property market is predicted to decline every year but rises every year. As an experienced real estate developer with personal experience and practical knowledge, Ren Zhiqiang's statements are not entirely unreasonable. He dares to publicly state that land is the driver of continuous housing price increases, which clearly points out that many local governments now rely on land finance. Without land revenue, local governments might struggle. Perhaps this is the real reason behind Ren Zhiqiang's constant claims that housing prices will always rise, that they are not high enough, and his statements that "don't let the poor afford commercial housing" and "I have no responsibility to build houses for the poor; real estate developers only build houses for the rich"? And how many "unspoken difficulties" are there in the term land finance? This probably doesn't need different opinions; everyone knows it well.