The Mechanism And The Impact Of The Real Estate Bubble

The real estate not only involves a long industry chain of many factories, but also is the basis of many finance assets. Since the market-oriented housing reforms system of1991, China has experienced a sustained rise in real estate prices. This article aims to analyze the internal mechanism of the real estate bubble, the impact of the bubble, and the suitable policy measures.Firstly, this article measured the price of real estate. We calculated the proportion of real estate investment accounted for GDP, the price-earnings ratio, and the price-rent ratio, which shows that our real estate industry is indeed a bubble phenomenon. Secondly, we measured China’s real estate bubble. We use the inter-provincial panel data model to analyze the influencing factors of real estate prices. We find out that fundamentals can explain the real estate prices well, so China’s real estate bubble is inherent foam rather than speculative bubble. Thirdly, we analyzed the internal mechanism of the above fundamentals, which shows the land finance, the polarization of the national income, the financial support of the banking system, and the missing of rent-or-buy selection mechanism cause the real estate bubble. Fourthly, this paper analyzed the impact of the real estate bubble from the two dimensions of economic and social. Finally, we proposed several suitable policy measures to solve the problem of real estate bubble.