How The Government Can Regulate Real Estate Prices Effectively In A Market Economy

In a market economy, real estate prices are among the most unpredictable. This is due to the numerous factors affecting the market prices, which in turn are affected by many other markets. For instance, the real estate market can be segregated into many sub-markets based on factors such as its usage, class and locations. Although each market has its own pricing system, all the markets are interlinked. A small fluctuation in any related market will affect the whole real estate market.However, for the market economy to flourish, it is necessary for the price mechanism to guide economic activities, hence allowing the pressures of competition, supply and demand to influence prices. As the'perfect competition'market structure rarely prevails, huge price fluctuations can happen. When a related market is affected, it affects real estate prices, thus leading to an undesirable effect on the national economy and people's livelihood, before the government has the chance to intervene. The best possible strategy for the government is to allow the price mechanism to determine the price, while taking timely actions to ensure that the'perfect competition'structure is achieved as far as possible but not completely.This paper shall analyze the fundamental factors affecting demand and supply for real estate, their respective regulations, the response to demand, financing conditions, land, building materials, human resources and development enterprises. Other legal regulations which indirectly helped to control property prices– land planning, market segregation, establishment of state-owned enterprises and organization of the housing development cooperatives– are also analyzed.