Question : Select a public sector policy issue in which you are interested and present an overview of the issue.
Summary
Chinese real estate have already stepped into the fast development time, therefore guarding against the real estate bubble is of great significance. The essay describes the development of Chinese real estate and the soaring house prices. The context include the nature of the real estate bubble, the disadvantages of soaring house prices, the historical development, the interest groups germane to the public policy process and the role played, the potential policy implications and how government strengthen macro-control according and policy adjustment to the situation to ensure the real estate sustained, rapid and sound development.
Macro-control battle in the real estate
Introduction
Real estate bubble is a kind of economic phenomenon that is easy to occur in the fast developing countries. Once the phenomenon happens, the damage will be imponderable. Nowadays, Chinese real estate have already stepped into the fast development period, therefore guarding against the real estate bubble is of great significance. Attaching great importance to the problem, State Strengthen macro-control to curb soaring house prices and develop a healthy real estate market with balanced supply and demand and moderate price increases.
The Soaring House Prices
In recent years, we have witnessed the fast development of the real estate in China. New housings spring up -- just like bamboo shoots after a spring rain. With the rapid development of real estate, Cities take on a new look with modern and change at an amazing rate so as to cause a national debate on bubble-talk. Some people argue that house prices will be vulnerable to a meltdown because of real estate bubbles, while others firmly believe that the real estate bubbles does not exist. No matter whether the real estate bubbles exist, the disadvantages are obvious。
The soaring house prices not only make the effective demand of the Low-income group and middle-income group be closed the door on，but also cause a panic and form house-buying mania that customers would rather be debt-ridden in order to purchase house. Just as the saying goes:“No passion so effectually robs the mind of all its powers of acting and reasoning as fear (Edmund Burke).”; Adding to the commercial cost of the city, soaring house prices also weaken the competitiveness of the city and increase the government difficulty in transforming the city. Real estate bubble is also a signal of danger for property developers.
The main reasons of the phenomena are as follows. Firstly, the limited and scarce land resources are the foundation factor. Secondly, the increased speculation demand are inducement---the property Companies and agencies are weeds among seedlings, some of which try their best to bid up housing price and cause an artificial economic boom. Finally, the excessive lending by financial institutions is an external cause.
In history, there are no lacks of lessons in real estate bubbles. Japanese real estate has taught us a lesson, that is, real estate booms tend to be more dangerous than stock market bubbles, and are often followed by periods of prolonged economic depression. Once the housing boom goes beyond the benign category, it will cause a series of unmanageable consequence which are like time bombs full of threats and risks planted among citizens to the economy, finance and society and even bring chaos.
Macro-control battle in the real estate
In the continued rapid growth of past 7 years, government strengthened and improved macro-control according to the situation to ensure the real estate sustained, rapid and sound development. During this period, there has been three times economy policies related to the real estate: first, in 1998, in order to promote the house consumption and to expand domestic demand, government published the policies including “housing reform”, “ a rise in wages”, “reduction of interest”, “remit tax”, “develop residential mortgage loan "and so on.
Second, from 2003 to 2004，preventing the overheated investment in real estate was a priority of the central government's agenda. After 2001, real estate investment increased at an amazing rate, becoming the pillar industry in national economy. How the current housing boom ends not only decide the future economy, but also is closely bound up with the citizens’ interests. More and more issues were gradually exposed during the industry development period due to the incomplete system of real estate. From the beginning of the 2003, the “real estate bubbles” gave rise to much controversy. Since then, the policy adjustment and regulation were even more continual. Though the real estate has experienced the enormous pressure from the macro-control, it is not an easy thing to make vigorous efforts to turn the situation as Rome is not built in one day. The policy have not achieves the desired effects. In the real estate market, any policy adjustment can lead to the changes of distribution patterns among the interest groups. It is self-evident that the strong resistance coming from interest groups will be against the policy. In these interest groups, besides the property developers and the speculators, local governments also play an important role. Some local governments enhance GDP by raising price up to win the dazzling achievements; some even collude with other interest groups. In some sense, the key to the real estate lies in the local governments’ positive cooperation. Only when the local governments carry out strictly its supervision over the implementation of the public policy can the policy achieves the anticipated goals; otherwise, everything is an armchair strategist.
This year, the policy and regulation laid a strong emphasis on the stemming the rise in property prices and keeping the building speculation within limits and leading rational consumption of housing. On March 16, the People's Bank of China claimed to heighten the central bank's housing loan interest rate and implement the price floors. On March 17, the rate of personal housing accumulation fund loan raise 0.18 percentage points. On April 12, the default loan will be penalized by interest rate according to the commercial loan provision. Government keep the building speculation within limits by using economic levers such as the raising interest, adding tax, reducing residential mortgage loan and so on. On June 1, the state impose a 5％ business tax upon house-exchange which was purchased with two years to control speculation in real estate. As for the ordinary commercial buildings, the state will keeps on providing with preferential treatment. Tax policy and interest rate adjustment worked along both lines, which show the state’s strong intention to curb surging real estate prices. It is disastrous to many speculators.
A report by the National Institute of Statistics and Censuses shows that most of the cities rein in rocketing house prices; In 70 cities, the raising range of the prices has fall back to 6.3% already; the prices in 19 urban had been reduced. However, every coin has its two sides. The policy also aggravates the common people’s financial pressure because of the increased central bank's housing loan interest rate and down payment. But the positive effects still outweigh its negative effects. How to strike a balance between ordinary peoples’ interest and policy will be a consideration of government.
Conclusion
During short time, Positive changes have taken place when the national macro-control policy was carried out, though there are some negative effects. How to strike a balance between ordinary people and policy is a consideration. We have every reason to look forward to more such policies that are beneficial to citizens and whole nation.
List of References
Yi Zhongli，10 May 2005,It is not an easy thing controlling the house prices，viewed 9 October 2005，<http://www.3s3s.cn/fc/zxzx/newinfo.php?id=1267 >
Wang Hai，Pay attention to real estate hotspot，viewed 9 October 2005，
<http://www.zzfdc.gov.cn/piat/xinwenitem.asp?xinwenid=4237 >
Luo Chunyan , 6 April 2005, Housing price curbs in the spotlight, viewed 11 October 2005，