Summary of the Key Points
This article focuses on the issue of how to clear the real estate market, emphasizing that it cannot be rescued through massive monetary easing. Instead, a systematic approach is needed to clean up the market, change mindsets, and adjust the existing profit structures. The main arguments include: giving up the illusion of saving real estate companies and stopping ineffective capital investments; promoting structural reforms rather than relying on overall monetary expansion; making those who have benefited from the real estate boom bear the corresponding costs; designing and implementing a fair property tax; and allowing housing prices to rise reasonably through wage increases, rather than maintaining artificially high nominal prices.
Detailed Explanation
1. Stop the Illusion of Rescuing the Real Estate Market with Massive Monetary Easing – It’s Like Using Everyone’s Money to Fill the Pits of a Few
Many people hope that the government will print money to save the real estate market, but this is simply not feasible. Why? Because massive monetary easing essentially uses the money of all taxpayers to support highly leveraged real estate companies and those who own multiple properties. Previous government policies focused on ensuring the completion of construction projects (rather than saving the companies themselves) and purchasing existing properties for use as affordable housing. While the goal of ensuring project completion has been largely achieved, the progress of purchasing existing properties has been slow—real estate companies argue that the government’s purchase prices are too low (they demand a cost plus a 5% profit), forcing local state-owned enterprises to buy properties at prices that do not even cover the interest costs. Experts who advocate for market rescue are often those who already own property and stand to gain from the current system. For example, suggesting that housing prices should be included in monetary policy targets would mean spending trillions of yuan annually to support their own property values, which is nothing short of stealing from the public. Therefore, the first step is to stop pouring money into this endless cycle and instead use resources to increase everyone’s income.
2. The Old Approach of Stimulating the Economy through Monetary Easing No Longer Works – Structural Reforms Are Necessary
In the past, when the economy was declining, monetary easing would boost real estate, leading to increased GDP and tax revenues, which made people rely on such “quantitative policies” and avoid genuine reforms. The years 2013-2014 offered a good opportunity for reform: housing prices were low, and there were many new residents, so the impact of implementing a property tax would have been less significant, and it would have created space for new industries like the internet. However, at that time, policies aimed at increasing prices to reduce inventory only fueled further bubbles, and the resulting adjustments have been much more painful now. The cost of quantitative policies is deferred to the future, while the cost of structural reforms is immediate. Avoiding reform will only make the future worse. If no changes are made during times of prosperity, problems will accumulate, making it even harder to address them later on.
3. Those Who Benefit Must Bear the Responsibility – The Benefits of the Real Estate Boom Should Not Be Unearned
The logic behind rising housing prices is that “early entrants benefit at the expense of latercomers.” This separation of costs and benefits is the root of the current problems. To solve this, those who have benefited must bear the responsibility:
- Illegal activities must be punished: Xu Jiayin was sentenced, but many real estate executives still receive high salaries and engage in speculative activities. Their illegal gains should be recovered, and the state should not be forced to clean up their messes.
- Beneficiaries should share the costs of reform: Even if they have not broken the law, those who have made money from buying property should contribute to the reform process. History does not only look at legal provisions; if no one wants to take responsibility, everyone may end up paying a much higher price in the long run.
4. The Property Tax Is Not a Tax on the Whole Population – It Targets Those Who Own Multiple Properties
Many oppose the property tax, arguing that “the land belongs to the state, so it shouldn’t be taxed.” This is a double standard: when you sell a second-hand property, you keep the money for yourself, yet you don’t say the land belongs to the state. In reality, the “substantive ownership” of a property depends on who reaps the benefits. If you make money from selling it, you are the de facto owner and should pay the tax. The property tax should be designed reasonably, for example, by providing tax exemptions based on the number of family members (more children mean more exemptions), excluding rental properties from taxation, and using a progressive tax rate based on the number of properties owned. With all housing information now linked online, the technical implementation is feasible; the key is political will. A property tax can discourage the practice of holding properties in nominee accounts and help people realize that owning property comes with costs.
5. Housing Prices Need to Rise Reasonably – Only Through Wage Increases
Many people worry about the “nominal” value of their homes, fearing depreciation. However, what matters is the “relative price”—for instance, the rent-to-price ratio (how many years of rent the price of a house represents) and the price-to-income ratio (how many years of salary the price of a house equals). The only way to achieve a reasonable increase in housing prices is through wage increases. When salaries rise, people will be able to afford higher housing prices, and the relative price will decrease, making it more affordable for everyone. Focusing only on nominal prices will lead to a situation where young people become disengaged from the labor market and marriage rates decline, harming everyone.
Conclusion
Clearing the real estate market is not about simple market rescue; it requires breaking old profit structures and mindsets. Only by holding those who have benefited accountable, promoting reforms, and increasing everyone’s income can we avoid repeating historical cycles of economic downturns.