To buy or not to buy? That is a difficult question at a time when housing prices are rising again in major cities such as Beijing and Shanghai. However, the authorities are taking measures to curb speculation in the housing market.

The annual Central Economic Work Conference in December announced thatsolving the housing problems in the major cities is one of the eight major tasks of the government in 2021. The conference also mentioned that reforms on both the supply and demand sides should be carried out to achieve a dynamic equilibrium in the housing market.

The housing market has become a key obstacle in China's high-quality economic development. In some ways, the frictions in the housing market had hurt the demand for, and the supply of, non-housing goods and services in Chinese cities.

In the past 15 years, housing prices have increased by 10-15 times in metropolises such as Beijing, Shanghai, and Shenzhen, while the rise in the income of people in these cities has been relatively lower. For example, the price of an apartment could be 30 times a family's annual average income.

The insufficient development of the rental market is a key manifesto of the problems plaguing the housing sector. Homeowners and real estate developers tend to sell rather than lease out homes, in order to earn quick money. The shortage of supply led to the quick expansion of house leasing platforms, which grows aggressively with a temptation to obtain market power and charge marked-up rents, only to fail one after another. Tenants face high rents but nevertheless instability in the rental agreements, and lack the rights enjoyed by homeowners. As a result, they are forced to leave the major cities and seek employment in second- or third-tier cities where house prices are lower and rentals are more readily available.

Solving the housing problem in big cities is necessary to facilitate China's high-quality economic development, said theCentral Economic Work Conference. The Conference emphasized the importance of government-subsidized housing, house leasing programs, andlong-term tenancy housing policy to ensure tenants enjoy the same rights as homeowners.

But it is challenging to implement the program because of three reasons. First, it is difficult to find land to build rental or lease housing. Even though the central government has vowed to promote a favorable land policy for lease housing and asked local authorities to supply land for such projects, incentive schemes and regulatory accomodations still remain to be developed. One potential pathway is to transform unused or abandoned factories and markets into rental housing communities.

The second challenge is how to ensure that tenants enjoythe same rights as homeowners in cities. According to a plan, in big cities such as Beijing and Guangzhou, the children of "qualified tenants" and homeowners will enjoy the same rights in getting admission to nearby government schools for the nine-year compulsory education. But this cannot be guaranteed unless adequate school seats are allocated.

And the third challenge is how to evaluate the real benefits — such as lowering of the living cost — of the policy aimed at solving the housing problem in major cities, laying out pathways to incentivize and score performance in solving the housing conundrum, and ultimately improving the spending power of the people.

Discretionary income is such a measure. Unlike disposable income, discretionary income is the amount of after-tax money freely available for spending, after basic housing costs and food expenditures are paid. A better rental market reduces the basic housing costs, and increases the discretionary income of the people. Systematically calculating discretionary income, and using it as a guide for the housing side of the economic policy, can help determine whether the measures aimed at solving the housing problem in the major cities are yielding the desired results.

By Zhang Yu | China Daily | Updated: 2021-02-08 08:32
https://www.chinadaily.com.cn/a/202102/08/WS60208682a31024ad0baa7e66.html