Real estate must return to the road of reform and opening up

In order to avoid hyperinflation, we should make up our minds to continue to tighten monetary policy, increase the use of interest rates, exchange rate pricing methods, and resort to a number of means such as the deposit reserve ratio to recover overdue currencies in the past few years.

Where prices are rising, supply must be in short supply. Take the financial industry as an example. Nowadays, it is difficult for private enterprises to raise funds. The interest rate of the black market is as high as 50% or even more than 100%, which indicates that the supply of financial services to SMEs is seriously insufficient.

Another industry in short supply is real estate, housing prices reflect the imbalance between supply and demand, and the bottleneck of real estate is the government monopoly of land supply. I have been emphasizing a point of view. It is not the current supply and demand but the expected supply and demand.

Can the security housing increase supply and reverse the shortage? I think it is unlikely. Taking a step back, even if the security housing is successfully completed, commercial housing may become more expensive. In addition to land, monetary policy has a major impact on market expectations. Since the rate hike lags behind inflation, real interest rates have been negative for a long time, inflation expectations have risen, and the demand for physical assets has continued to boom.

If the government is determined to carry out real estate regulation in the end, can it change market expectations? Maybe, but the question is whether regulation can be carried out in the end? In the past several times, the regulation of the property market has been abandoned due to the stumbling of taboos and concerns about the negative impact on economic growth. Once the policy is loosened, the price will immediately retaliate and I believe this will not be an exception. What differs from previous occasions is that under the overall direction of controlling inflation, the government seems willing to sacrifice one or two percentage points of GDP in order to reduce housing prices. However, the “means” that must be scrutinized this time are different, and local finances may become a new factor.

The crux of housing prices lies in local finances, which has gradually become the consensus of people. About 40% to 60% of housing prices are land prices and all kinds of fees and taxes, that is, local fiscal revenue, do not solve local financial problems, housing prices are a knot that cannot be opened.

Real estate regulation makes land finance difficult to sustain. If the regulation is carried out in the end, the capital chain may first be broken down by local governments instead of developers. What should be done then? If we can't go along with the idea of ​​administrative intervention, where is the hope of the real estate market?

Like the financial industry, it is still necessary to rely on reform and opening up to fundamentally solve the real estate problem. Specifically, opening up the primary market for land, increasing land supply, tying up land prices and housing prices, and completely changing the expectation of increasingly scarce land and housing. The market allocation of land will eliminate land finances. In order to balance local budgets, fiscal and taxation reforms are needed. The focus of the reform is not on the division of financial power between the central and local governments, but on the precise definition of government functions and public supervision of fiscal revenues. The government should weaken its economic functions and investment functions, cut redundant staff, cut government consumption, and concentrate limited tax revenues on public services and people's livelihood. The people's livelihood projects include the construction of affordable housing. In other words, fiscal reform focuses on saving, not open source. If the government's functions and expenditures expand according to the current trend, it will not be enough to open up more sources of funding. If you want to save money, you must strengthen the supervision and control of taxpayers. Historical experience tells us that self-restraint is unreliable.

Out of the Keynesian framework, from macroeconomic policies and administrative interventions to the reform and opening up, reform the fiscal and taxation system, open monopoly and regulated industries, open markets, create new investment opportunities and employment opportunities. The growth potential of China's economy has not been exhausted. It is the rigid system that has us caught in the current dilemma. Adhering to the reform and opening up, we can break the rigid system and usher in a new round of economic growth.

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