8 Economists' Investment Tips
Lu Ming: “The Spatial and Temporal Pattern of Real Estate in China” — Is “flour more expensive than bread” an important reason for the rise in housing prices in China?
Summary of this issue
Is “flour more expensive than bread” the reason for rising housing prices in China?
Why are rents rising so fast in Beijing and Shanghai in the past two years?
What's in this issue
The fifth view is also very popular. It says that there is a phenomenon in China — flour is more expensive than bread. Even in the urban housing market, land prices are constantly rising, so some people say that after land prices rise, of course, houses will have to be sold a little more to make up for the cost of land development. Therefore, many people think that land prices are driving up housing prices, and another conclusion was drawn from this, saying, look at how bad real estate developers are.
Let's analyze this issue calmly. I know that saying this will have a big impact on my academic reputation, and some people will think I'm standing up for real estate developers. In the land market, why can land be sold at a relatively high price? The real estate developer must have anticipated that in the future he will set a relatively high house price, and some people will buy it, so he dared to pay a high price when shooting land. If it were the other way around, imagine that the government wants to control housing prices, and housing prices can't be supported. If everyone were real estate developers, would you dare to buy higher land prices? You don't dare.
In fact, with our suppression of real estate prices over the past few years, large amounts of land on the land market can no longer be sold. Therefore, in fact, land prices depend on housing price expectations, and if housing price expectations are high enough to make real estate developers dare to bid for a relatively high land price, it is because everyone is willing and able to buy in the future, so don't simply shift the responsibility of rising housing prices onto real estate developers; we also need to find deeper supply and demand side factors.
The last problem is a phenomenon that has occurred in the last two years. Recently, rents have risen relatively rapidly in both Beijing and Shanghai. In particular, real estate agents are doing standardized rental housing. For example, if the house is managed uniformly, and it is also decorated uniformly, the price will be a little more expensive. So we blamed the intermediary again, saying that the intermediary boosted housing prices. This is another very strange logic. People think, first of all, are you enjoying better service in this relatively standardized housing rental market? For example, the decoration is unified, the property is managed uniformly, and the contract has good legal protection. Should you pay a higher price for this kind of service?
This is not the most important thing. More importantly, if the housing is adequate, you can not rent a house provided by this kind of agency, go to the market to find a landlord and rent his house. So the final price you pay is still because you are in demand for this kind of housing. Well, given the demand, the rise in rent is related to supply in the rental market.
Let's take a look at the phenomena that have occurred in Beijing and Shanghai in the last two years. What kind of phenomena have occurred in Beijing and Shanghai? Demolishing illegal buildings and cracking down on group rents. We think we should live in a decent house. As a result, the more control there is, the less supply is in relation to demand. So the simplest economic principle will tell you that given demand, prices will continue to rise when supply is low; if there is sufficient supply, prices will not rise.
I just responded to a few comments that are very popular in the real estate market. So far, I have comprehensively explained to you the basic determinants of housing prices. Let me tell you that to understand housing prices, the most fundamental thing is to start with the supply side and the demand side. There are many popular claims that housing prices in China are beyond what economics can explain. I would like to take this opportunity to tell you that this is not the case; prices in the Chinese real estate market can be explained by basic supply and demand factors. If you think you can't explain it with economics, it's not that economics is wrong, but you don't understand it. If you understand it, you know that the factors I'm talking about today are nothing more than explaining from the demand side and the supply side.
To determine the future trend of housing prices in China, as well as differences in housing prices between cities, we also need to start from the perspective of the demand side and the supply side, which I just mentioned. The two most important variables on the demand side are, first, income and trends; second, is whether the population is growing or shrinking, if it is growing, how fast it is growing, and if it is shrinking, how fast is it shrinking.
The supply side depends on the following factors. First, whether the city's land supply is adequate, and the land supply is related to the construction land index I mentioned earlier, depending on whether the government is strictly managing it.
Second, in the case of land used for construction, how much land is used to build houses and how much land is used to build industrial parks depends on government policies, and it will also affect the growth rate of housing supply in the market.
Third, in the land where houses are built, how much is used to build houses and how much is used to build office buildings will also affect the structure of the city's land supply.
Fourth, whether there will be strict floor area ratio controls on housing, which also determines how many houses I can build on the same residential land.
Fifth, is the government fully supplying low-rent housing and public rental housing, and whether the supply of low-rent housing and public rental housing matches the place of employment? It is relatively close to the city center or very far away, so much so that people think I don't want to go if I have low-rent housing.
Sixth, whether the market mechanism has been fully exploited to meet the needs of ordinary people to rent housing.
So the supply-side factors I just mentioned are actually mainly these six major aspects. To understand the level and changing trends of housing prices in a region, as well as differences in housing prices between cities and regions in China, we need to combine the two aspects of demand side and supply side that I just mentioned.
That is the content of this course, thank you all.
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