Housing Price Formation Mechanism And Housing Supply System

Housing is a commodity as well as a kind of welfare goods,which is the key differencecompared with other general merchandise.The particularity of housing due to it has consumption,investment and social welfare functions at the same time.The three functions also determines thatthe demand for housing can be divided into consumer demand and investment demand, which caninfluence and transform into each other.To study housing prices,we must consider the dynamictransformation of housing demands as well as the the contradictory relationship among the triplebasic functions of housing.The fluctuation characteristics and bubble formation mechanism ofhousing cannot be clarified correctly and empirical studies also difficult tends to ideal results ifany point be neglected.Because of the existence of the triple functional attribute,changes inhousing price not only affect the supply and demand in the housing market itself,but also make animpact on economic and social life at the same time.This effect can be referred to as housingprices spillover effects.What’s more complex is as followings.First of all,each of housing’sconsumption, investment and social welfare triple property,which can also be called the threebasic functions has a corresponding demand groups,such as the investment function correspondsto investment demand,the consumption function corresponds to consumer demand,and the socialwelfare function corresponds to the low income families with housing problem.Secondly,each ofthe three basic functions puts different requirements on housing prices for their fullplay—investment function requires housing price up,while consumption and social welfarefunction need housing price remained at a low level.Finally, based on the two previous facts, webelieve that changes in housing prices will harm the interests of one or two of the three groups nomatter up or down.Namely,housing price bubble is easy to be produced and has a negativespillover effect,which is determined by the nature of housing itself,with the inevitability of such atypical market failure state for the housing market.Therefore,this article is aimed at the housing price and based on the three basic function ofhousing property,starts from the theoretical level of the decision-making mechanism of housingprices,further studies the reality characteristics of housing prices and spillover effect,explains the inevitable failure of the housing market according to the contradiction and opposite relationshipamong the three basic function attributes of housing and finally seeks both symptoms and rootsolutions to the housing market failure problem.The task of Chapter2is to summarize and comb the status of China’s housing market.Whatwe found is that there are problems in China’s housing market,such as high housing price toincome ratio,high housing vacancy rate,vast size of investment demand and housing pricebubble.Although these problems belong to housing market itself on surface,there are still thespillover effects due to the special nature of housing goods which have a negative impact on thenational economy and social life.Finally we conclude that high housing prices is the commoncauses of the various problems in China’s housing market.Based on the discussion in Chapter2, the study of housing problems needs to start from theprice. House is a special commodity that can be investment goods and consumer goods at thesame time,with a multi-functional properties as well,so the determination mechanism of housingprice is very special.The price is dominated by the law of value,also affected by supply anddemand adjustment,and regulated by the government at the same time.According to thefundamental properties of housing, housing demands are divided into consumer demand andinvestment demand by housing economics.These two demands can transform into each other withthe changes in housing price,in turn,the changes in demands also determine the housingprices.Analysis of housing prices must be based on the dynamic changes of housing demands,andcomprehensively consider the housing’s three functions of consumption, investment and socialwelfare.Chapter3of this paper will make depth study on housing prices.First of all,based on thedynamic characteristics of housing demands,we study the decision-making process of the housingprices without considering the impact of external factors and found that housing has the nature toturn consumer demand into investment demand,thus forming the housing bubble.Then consider ofthe real housing market,there are all kinds of economic or political factors that can affect and evendetermine the housing prices.We cannot avoid these exogenous factors when talking abouthousing price.Comprehensively take as many influencing factors of China’s housing market aspossible into accounts,we found that these external influencing factors do boost or delay thegeneration of the housing bubble.In China’s housing market, not only economic factors such asthe scale of credit can affect housing prices, the housing market system, the financial distributionsystem and even the behavior of the local government make contributions to China’s housingprices rising as well. China’s high housing prices is the gaming result of the main connected subjects in housing market.The task of Chapter4is to conduct an in-depth analysis of the spillover effects of housingprices.The study found that: housing price changes can have an impact on both of a country’seconomic development and social welfare,especially when housing prices rise, the spillovereffects are mostly negative with inevitability.To be specific,housing prices can affect families’investment and consumption decisions, can also have an impact on the investment decisions ofenterprises,and can even affect the behavior of local government,that is,the changes in housingprices affect the total consumption, total investment, and government purchases,thus makinghousing prices affect the level of total output.At the same time,housing prices can change thepermanent income level of both families with house and families without house,making the gap interms of income, consumption, investment, or family welfare of the two types of families widen,thus decline the level of social welfare.From the empirical results of Chapter4,we found thatwhen China’s housing prices rise,the total consumption decreases,total investment flows out of thereal economy,there is a substantial increase in government revenue and the loss of social welfarelevel is proportional to the housing price.So the promoting role of housing prices on output isachieved by increasing government purchases,which is an unsustainable way.Housing prices willhave negative spillover effects because of the three functions of housing consumption, investmentand social welfare,each of which has its own requirement to the price,making housing pricesfacing a "trilemma",no matter how changes,some people’s interests will still be damaged.Thistypical market failure requires government regulation,and the most effective and feasible methodof government regulation is the system tools.In Chapter5of this article,we first make a induction and consolidation of the systems andpolicies of the current housing market,and rank the directions and interactions between thesepolicies and systems and sort out the logic diagram of the systems and policies of the housingmarket. We found that the most fundamental institutional factors leading to China’s high housingprices is the single supply of in China’s housing market, whether the supply subject or the supplyobject is in single situation. Secondly,we make a discussion of the international countries andregions with an effective solution to the housing market problems,summarize their successfulexperience and compare with China.We found that the two-track system of multi-level housingsupply system is fundamental to the success of these countries,which our country is lack of.Chapter6focuses on the feasibility of the two-track housing system and tries to proveit.After examining the housing prices fluctuations under the two-track system of housing supply system,we found that the two-track housing supply system really can stabilize housing pricesrising effectively and can isolate risk effectively.In the view of this,combined with thecharacteristics of China’s housing market,we design a preliminary framework for the two-tracksupply system.From the research above, this article argues that the characteristics that housing prices is easyto form bubble is determined by the nature of the housing, different operating characteristics ofsystem and macroeconomic can impact housing price fluctuations and volatility cycle.Thespillover effects of housing price is the results of single supply system can not satisfy the threebasic functions of housing property at the same time. Therefore, an effective solution to solve thistype of housing market failure problem is two-track system of housing supply system.