Houses stay much the same year after year, but rents differ from year to year. A set of statistics recently disclosed by CCTV shows that in 2008 the average monthly rent for a single apartment in Beijing was 2,010 yuan, but it has since risen year by year. By the first quarter of this year, the rent had climbed to 3,660 yuan, up 82% from 2008—nearly doubling in five years.

Over the same five-year period, the average increase in Beijing rents actually outpaced housing prices. Data shows that in 2008 the average transaction price of commodity residential pre-sale homes in Beijing was 12,800 yuan/square meter, while in the first quarter of this year the average transaction price of commodity residential homes was about 22,000 yuan/square meter, an increase of 71.87%. Compared with the 82% rise in rents, the increase in housing prices was 10 percentage points lower. Surprisingly, despite such sharp rent increases, the rental market has shown a strange phenomenon: renters' bargaining power has not improved, and the upper hand remains with landlords. If asked why rents have risen so much, landlords not only answer with complete confidence but even retort: “What hasn't gone up these days?” The housing price-to-rent ratio has risen instead of falling, leading many Beijing landlords to prefer renting over selling and to regard their properties as permanent “money trees” and “treasure bowls.”

Why have rents soared? Industry professionals believe that insufficient supply of new housing, a large influx of migrants, and continuously rising CPI are the three core factors driving up rents, and that solutions must start from these three aspects.

I broadly agree with the views of industry professionals. But there is one point I cannot fully accept: insufficient supply of new housing. As long as we carefully examine reality and analyze the current situation, it is not hard to see that Beijing's housing problem is not merely one of insufficient supply, but one of insufficient actual purchasing power. As early as January 5 of this year, reports disclosed that the Beijing Housing Provident Fund Management Center issued a notice clarifying that loans for purchasing a second home would be granted only to households whose existing per capita housing floor area is below 29.4 square meters. The notice stated that the Beijing Municipal Bureau of Statistics had announced that the per capita housing floor area of urban households in 2011 was 29.4 square meters. Therefore, loans for second homes were to be granted only to contributing employee households whose existing per capita housing floor area is below 29.4 square meters (exclusive). In other words, if the per capita living area of the first home exceeds 29.4 square meters, the buyer's application for a provident fund loan for a second home will be rejected.

Is nearly 30 square meters of per capita housing still too little? Is that also considered insufficient supply? In terms of supply, a megacity like Beijing must add a considerable amount of new housing every year. However, relative to the migrant working population, most of whom cannot afford to buy homes, building more houses does not help. Today, even homes near the Fifth and Sixth Ring Roads in Beijing cost more than 10,000 to 20,000 yuan per square meter; buying a home costs at least more than one million yuan, and at most several million to tens of millions. How many working people can afford that? The vast majority cannot afford homes and can only sigh in the face of “housing.” Would building more homes then become like the phenomenon of “dumping potatoes into the sea” during a capitalist economic crisis? Therefore, this is not a simple issue of supply and demand, but one of actual purchasing power.

It is precisely because housing is too expensive to buy that many migrants choose to rent, and the shortage of rental housing has in turn quickly transformed high housing prices into high rents over the past few years. To use a popular saying, this is like “press down the gourd and the ladle pops up.” That is how the “invisible hand” of the market economy works. We must grasp this law well and act in accordance with it to avoid mistakes. Given that today buying a home in Beijing is a privilege only of a small number of highly paid elites among migrants, while the vast majority of working people must spend at least a quarter or even more of their wages on rent, and rent increases have surpassed housing price increases, increasing new housing is of course beyond reproach. But the urgent choice is still to curb inflation, and at the same time the government needs to use policy measures to regulate rents and resolutely stop phenomena in the rental market that distort the law of value and are detrimental to stability and development.

Editor: Wu Yue