Suzhou Tightens Housing Policy Again as Economists Worry About Renewed Housing Bubble

Home prices are on the rise and Suzhou is implementing buying restrictions again, with a target of 5 percent price fluctuation around target for 2019. There's no way Suzhou will hit its target if China stimulates the economy.

Rising prices also threaten consumption as more income goes towards paying mortgage debt. Besides slowing economic growth, it also makes the public less tolerant of inflation in other areas. "Fruit freedom" cannot be fully understood without the context of high home prices. Public reaction to a temporary spike in apple prices reveals the underlying negative mood. Any breakout in inflation will have serious repercussions. The last two times inflation really broke out was in 1989 and 1994. In one case tanks rolled, in the other the currency devalued 40 percent.

iFeng: 楼市观察:警惕房价反弹对居民消费的“挤出效应”
Sogou: Observation of Real Estate Market: Alert to "Crowding-out Effect" of Rebound in Real Estate Prices on Residents' Consumption
Recently, the Chinese Academy of Social Sciences released the "Blue Book of Real Estate" to analyze and discuss many hot spots in the current real estate market. The Academy of Social Sciences forecasts a 7.6% rise in house prices in 2019, with some key cities likely to exceed expectations. On the relationship between rising house prices and residents' consumption, Yin Zhongli, deputy director of the Financial Market Research Office of the Financial Research Institute of the Chinese Academy of Social Sciences, pointed out that since 2017, rising house prices have had a more obvious impact on residents' consumption expenditure. Therefore, this phenomenon needs more research from all walks of life.

With the deepening of central control over the past few years, society should gradually form a consensus that excessive house prices will cause many side effects. Housing prices are too high and the cost of buying houses continues to rise, resulting in the "big head" of housing loans in the expenditure structure of residents. By the end of 2018, the total scale of household debt in China has reached 43 trillion yuan (including 25.75 trillion yuan, accounting for 60%), accounting for about 90% of the disposable income. Household debt has sustained repayment expenditure, which will inevitably affect the current consumption expenditure in other areas of residents. For residents with low income, it will even lead to a decline in the quality of life.

Secondly, the rise in housing prices also brings about changes in residents' expectations for future investment and consumption. When people still hold a bullish expectation on housing prices, they will continue to invest their main income in housing investment, and their budgets for other fields will also decrease, indirectly inhibiting market demand in related fields.

If the house price is too high, it will also increase the rent. Especially in the past two years, with the implementation of macro-control policies for real estate, the prices in the primary trading market are relatively stable as a whole, but the prices in the secondary leasing market are on the rise. In the first quarter of 2019, the per capita residential consumption expenditure was 1,212 yuan, up 9.5%, accounting for 21.9% of the per capita consumption expenditure. Rent in some first-tier cities rose even faster.

In response to the development trend of China's real estate market over the past few years, the central government has clearly put forward that real estate should return to the nature of "housing not speculation" and has taken a series of regulatory measures to curb the excessive rise in housing prices in many ways, with obvious results.

Recently, there have been signs of a rebound in house prices in some domestic cities. The Ministry of Housing and Construction recently issued an early warning notice. All local bank and insurance regulatory bureaus have issued 32 fines for various irregularities in the real estate market within 50 days, with an amount exceeding 10 million yuan. All these measures show that the central and local authorities are paying close attention to the trend of the real estate market and will adjust and perfect the corresponding measures in accordance with changes in various links such as land auction and house price.

There are signs of a rebound in house prices, and there are even worries about overheating in some areas. This problem deserves our vigilance. High house prices have resulted in high leverage ratio of household assets, and at the same time have a negative impact on boosting consumption. According to the data, the total sales of social consumer goods and the final consumption expenditure of residents all showed a trend of continuous growth and decline after the household debt experienced two large increases (growth rate is about 40%) in 2009-2011 and 2016. The decline in residents' consumption willingness and insufficient consumption capacity will also have a negative impact on China's policy of boosting consumption and stimulating domestic demand, which will also drag down the restructuring of the national economy and the development of the tertiary industry.

Beware of the "crowding out effect" of the rebound in house prices on residents' consumption. After all, this is related to major issues such as the protection of residents' living standards, the transformation and upgrading of the national economy, and the reform of the real estate market. Some studies have pointed out that the proportion of housing loans to deposits has increased by 1 percentage point, while the consumption expenditure of residents has decreased by 0.2 percentage point. Then, our next goal is whether we can further strengthen the linkage research between housing prices and residents' consumption index, and introduce more targeted measures to control the increase in housing prices in a reasonable range this year, so as to ensure the smooth realization of the objective of deepening real estate regulation and control and enable the broad masses of people to live and spend at the same time.
It's going to come down to credit. If China continues deleveraging, "hot" cities can get a handle on their real estate markets. If credit growth takes off as part of a new stimulus effort, there will be little hope for stopping yet another round of housing speculation.

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