It's all a question of power, not controls

A fresh look is needed at how the battle against rising house prices is being waged

Month after month the price of city housing has edged up. The latest figure shows that the average price of new homes in 100 cities monitored rose to 10,180 yuan ($1,650, 1,270 euros) a square meter last month, despite the government's ever tightening price controls.

That was a rise of 0.8 percent on the previous month and the 12th consecutive price rise month-on-month.

The rise was only slightly smaller than that of April.

The real estate industry is abuzz with rumor about even harsher price control measures from the government in the coming months.

Some in the Chinese business press are saying it is about time for the new cabinet, appointed in mid-March, to take stock of housing policies and to reinforce measures introduced by the previous cabinet two years ago, which may not be working as the policymakers expected.

There are things the new cabinet has done right and things that the old cabinet did or did not attend to and that is causing the trouble today.

The first thing to do is to reaffirm that the nation's urbanization, still low compared with similar developing countries, will have to become a major driving force for growth over the next couple of decades. Part of that, of course, is to build more houses for new urban dwellers. This is a strategic goal that is not in dispute.

Nor has there been much debate on whether the government should have its various subsidized housing programs designed for low-income households.

If there is any dissatisfaction, it is that the programs are not broad enough to include more people - especially young university graduates working in cities other than their hometowns, and workers employed or self-employed in low-paid services who do not have the full official residential status that urban residents enjoy.

Without such special housing programs, the largest cities where most financial firms, research laboratories and technology companies are based, such as Beijing and Shanghai, would simply be unable to remain competitive. The last thing they need is a brain drain when other cities, in China and elsewhere, can offer better conditions for their young workers.

Nonetheless, one may wonder why so many cities without the industries of Beijing and Shanghai are having the same acute housing price rises.

In fact, as the aim of housing price controls is to provide cheaper housing and more stable rental for young workers in cities that are truly transforming themselves, local officials in other cities may want prices to keep rising so they can earn more from land auctions, a principal source of local government revenue.

So here we are not dealing with a problem of housing but one of local government financial power and autonomy.

Those cities do not have many businesses, and they cannot attract many young workers. Once local officials get more money from land auctions, they may build one or two large houses - most likely for themselves. They cannot be reasonably expected to succeed in investing in new businesses and building up local business.

There are many cities where each mayor in the last two decades would have announced ambitious development plans but, with few exceptions, development has hardly occurred.

And as the monthly housing price figures show, despite Beijing's attempt to keep prices stable, those cities may have continued to aspire to higher prices even though they have few meaningful development programs.

It would seem that for the central government the thing to do is redefine local governments' financial powers rather than trying to influence local real estate prices.

The author is editor-at-large of China Daily.

(China Daily Africa Weekly 06/07/2013 page13)