Central Planning Goes Haywire: Beijing Rents Soaring

Cities leading the way in cracking down on home price increases, such as Shenzhen and Beijing, are now experiencing soaring rents. Speculators are blamed for moving into rentals and buying up properties to control the market. Intermediaries are also blamed for helping. The work of the central planner never ends because the harder they work, the worse things get.

The headline of the second article highlights the potential PR disaster if prices aren't stabilized: Rising home prices are an economic problem, rising rents are a societal problem.

iFeng: 上涨15.5%!停不下来的北京房租
Zhongxin Jingwei client August 15 (Luo Huanlin) Before entering the Beijing Film Academy officially, the graduate student Qi Ming needs to find the house first.

In mid-August 2017, at this time last year, he and his friends shared a 60-square-meter two-bedroom house in Jiandemen. The house is the landlord who is contacted by the intermediary, and the monthly rent is 6,500 yuan.

In mid-August of 2018, You Qiming finally succeeded in finding a new residence, which is also a 60-square-meter two-bedroom, this time also 6500 yuan per month. But the difference is that he originally went to Beijing Film Academy and only needed to ride 3 kilometers, which took less than 15 minutes. Now it takes at least 1 hour to get to the school by subway. The small two houses around BFA have generally risen to 7500 per month. Above that, he can't afford it.
Beijing rents top in the country

The excuse of You Qiming is not an example. According to a report compiled by the Shell Research Institute from the Real Data database, Beijing has taken the lead in a number of housing rental data. In the first half of 2018, the absolute value of rent in Beijing reached 76.1 yuan per square meter per month, while the second place in Shenzhen was only 68.8 yuan per square meter per month.

Beijing's rental income ratio reached 29.81%, and the total rent was as high as 137.63 billion yuan. Compared with this, although Hangzhou surpasses Beijing in the per capita annual rent to reach 16,375 yuan, the total rent is only 38.67 billion yuan. The Beijing housing leasing market is huge and the price is high, basically forming other cities in the country. "The situation."
Similarly, Yu Qiming issued a sigh of "prices all the way" and there is data to support it. According to a report compiled by the Shell Research Institute from the Real Data database, the average rent for rents from August 6 to 12, 2018 was sampled, and the average rent for rent in Beijing increased by 15.5% year-on-year. In the rental market Beijing and Shenzhen are leading the way.

And specific to individual communities, there is a greater increase. For example, Tiantongyuan [In Changping, North Beijing], which was dubbed by the netizens as “the largest community in Asia”, rented two houses in the East 2nd district for 4,300 yuan per month in the same period of last year. It has been rising since the end of last year and has risen to 6,000 yuan per month as of July 30. The increase is nearly 40%.
The first table below shows rising rents in Tiantongyuan. The second shows Beijing and Shenzhen leading the country with average rent increases of 15.5 and 16.1 percent.

Zhaopin: China White-collar Average Salary Dips in the First Quarter of 2018
First-quarter of 2018 China white-collar labor market highlights:

The average monthly salary for white-collar workers fell to RMB7,629 in the first quarter of 2018, down 2.1% over the fourth quarter of 2017.

Beijing continued to be the city with the highest pay in the first quarter of 2018, with an average monthly salary of RMB10,197, slightly below RMB10,310 in the fourth quarter 2017.
Back to the iFeng article:
Qian Gang is a “free housekeeper” who rents a room freely. He told the Zhongxin Jingwei client (WeChat public number: jwview): “The media reported that the Beijing rent increase of 10% in July is not new, in fact, Beijing. The rent has already risen for half a year.” He said that since Beijing’s efforts to regulate the housing rental market at the end of 2017, “Beijing’s rent from south to north has suddenly risen.”

Qian Gang observed the housing data of the area he was responsible for. He believed that the rent increase from last year to this year was “very fierce. Many houses were originally priced at 5,000 yuan. It is difficult to find a house below 5,500 yuan.
A couple of white collar workers would have a household income of about 15,500. If they keep housing costs to one-third of salary, they could only afford a 58 to 68 sqm apartment based on Beijing's average rental (going by the two different numbers above). Fertility crushed.

A crackdown, justified or not, may be coming as some blame the rental agencies for driving up rent:
According to industry analysts, the current free-to-market, eggshell and other rental mediation platforms have begun to form a monopoly. Zhang Dawei also analyzed that more than half of the current rental market has been monopolized by various leasing agencies, and the largest leasing institution has controlled hundreds of thousands of suites. It is true that the fundamental contradiction is the tight supply and demand structure in the leasing market. In particular, some suburban housing units have been strictly regulated in the past year and cannot be rented out. In addition, the rental-to-sale ratio is too low, and there is a general expectation of rising rents. Fundamentally, there is nothing wrong with the intermediary.

"Intermediaries can't create panic, but they can amplify panic and use panic to make more money." Zhang Dawei said that from the perspective of capital, intermediaries are now generally engaged in investment business, generally locking in the 3-5 year lease period and earning the difference. In this case, the rising space for future rents is the intermediary's profit. From the perspective of the listing itself, the low-end and mid-range listings were packaged into medium-to-high-end rental listings, which also significantly increased the rent.
iFeng: 北京房租上涨背后的资本逻辑:房价是经济问题 房租是社会问题
Each group has different needs for leasing. High-income groups, although they have the ability to buy a house, need to rent a house nearby because of changing jobs or going to school. The middle-income group is mainly composed of new graduates such as fresh graduates, freelancers, and migrant workers. It is the main demand group in the leasing market, with the largest base and increment. Low-income groups with housing difficulties are in desperate need of the most basic housing security.

These three groups have a common appeal, that is, the lease period is stable and the rent is reasonable.

House prices are an economic issue and rent is a social issue. The rise in housing prices affects economic stability, and the rise in rents is quietly damaging, damaging people's quality of life and willingness to consume, and laying a hidden danger to the competitiveness of a city. Rents are more scary than house prices.

Why is Beijing rent rising? On the surface, the supply is reduced, the simple houses with safety hazards are removed, and the group rent is forbidden; the demand has increased. Every year, new employment groups in Beijing want to rent houses, and a large number of young people with “Beijing Dream” come to the city. . The gap between supply and demand leads to rising rents, which is a concise economic logic.

But this time the rent has risen, there are still differences.

Driven by the policy enthusiasm, the participants of long-term rental apartments have a strong impulse to seize the track and market share. At present, many long-term rental apartments operate as “two-host mode”. Under the pressure of huge housing competition, aggressively expand housing and seize the market. The founder of an apartment once said that the company is about to complete a new round of financing, and that the money will be used for the company's nationwide expansion, even at no cost. Such radical listings will inevitably push up the market rent. The various parties in order to compete brand market share, high probability will select "financing - Get project - refinancing - and then get the project," added leverage development model to scale-oriented. Large-scale financing, aggressively grab the housing, seize market share at all costs, and strive for the pricing power of rent. Capital is eager to move from a money-burning model to a money-making model, and rising rents are an inevitable result.

And this is the capital-driven logic of this Beijing rent increase.

"Once the capital is selected, it will only continue to raise on it in the future. If the latecomer does not have a way to live, he will not be able to get the money." One founder once felt so. “burning money” burned out industry barriers and burned out the pricing power of the industry. Companies with insufficient capital strength could not enter the market or they could only stand by.

Along with the competition for housing and the rise in rents, it is the operational risk of the operating agencies. In the case of hoarding during the aggressive expansion period, the base rent may be too high, and the price of flour and bread may be upside down. Under the pressure of huge housing competition, there may even be some operating agencies, which are not perfect in preparation in the early stage. Long-term leases have houses with property rights. After entering the operation, they will face the change of property rights and the change of leases, and benefit the tenants. Caused great losses. From the perspective of externalities, the operational risks of an organization are also transmitted to competitors, and their operational risks are transmitted to the same institutions. Leasing institutions with poor management and high financing costs are likely to have insufficient cash flow to cover costs and constitute a substantial default. Eventually leave a local feather in the rental market.

Under the guidance of "the house is used for living, not for speculation," it is necessary not only to prevent speculation in the house, but also to avoid speculation in rentals. The regulation of the leasing market requires legal and institutional norms, and it requires more strong supervision. It must be bound by capital, and the policy orientation is people's livelihood. Rather than being in the jungle of capital, capital is king, and markets are sometimes out of order in the field of public goods supply.

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