By Liu Shijin, DRC

2017-03-27

When we talk about reform, we are in fact driving at the way for addressing related problems. And what concerns the public most are the high housing prices, especially those of first-tier cities, and the issue is actually one relating to supply and demand.

First, viewing from supply side, the growth speed of China’s metropolitan clusters is gaining momentum, and resources as well as population are swarming toward the Pearl River Delta and the Yangtze River Delta, making agglomeration effect become more tangible and the overall productivity more efficient. The actual demand is increasing, which is in accordance with the law of economics.

Second, the problems on the supply side are actually related to land system. Land supply acts awkwardly to the market performance and it fails to keep pace with market demand. The reasons are: 1. Compared with some metropolises of developed countries, China’s residential land area takes up a small share in total land supply package. 2. The Third Plenary Session of the 18th CPC Central Committee has made it clear that rural collective construction land and state-owned land should enjoy the same land price and the same land rights in the circulation market, but now land circulation seems to be confined to collective ownership and related households.

Third, high housing prices will squeeze the development space of other industries, and it is necessary to deepen supply-side reform in the course of urbanization drive to solve the problems with housing prices. Housing price is in line with production price among the fundamental factors in cities. The high costs caused by high housing prices would lead to the sluggish development of cities. A rigid land system may give rise to rigid housing price bubbles, which will impose an impact on industrial structure and make it go beyond the expectations for the development of some other industries, including service industry. The number of service sectors in some first-tier cities has been reduced in the last two years, which is abnormal. Viewing from this fact, China might face many difficulties in maintaining a stable, sustainable and vigorous economic development in the near future if land system remains unchanged.