chinaIt is interesting to start to get a grasp on what a planned economy is. Now China, you might say, is a market economy. That’s only when it wants to be. Effective today, new nationwide property laws have been put into effect. The laws are meant to bring skyrocketing property prices back down to earth. Prices for urban housing have already risen 10-35% in the first four months of this year.
Here are some of the new rules: 70% of all new land allocated for housing must be “affordable housing,” a 5.5% tax on gross proceeds will be applied to houses sold less than 5 years after purchase (2 years was the previous holding period), and people purchasing houses over 90 square meters in size must put 30% of the price down (20% before). These rules are meant to make cheaper housing more available, slightly discourage speculative property investment, and make it more difficult for people to buy larger houses.
Now, keeping housing from becoming too expensive for people because speculative investors and developers manipulate the prices is certainly a good thing. But posting nationwide laws aren’t the only option.
Patrick Randolph wrote to the members of ChinaLaw suggesting that the better option for China would be subsidized housing. This because it would be a direct, government controlled solution to the housing problem. Providing plentiful cheap housing in major cities would probably lower demand for more expensive property. Of course, I would worry that if the state directly hires developers to build the housing, they would be corrupt and lazy and build poor quality housing. But subsidized housing is certainly a more direct solution.
Instead, the government is laying out blanket laws that don’t fit every situation. For example, a rural family that often has three generations under the same roof, would need more than 90 square meters. However, a possible positive is that the building of the affordable housing is still privatized and, hopefully, an open market will cause developers to compete in quality and pricing.
But there’s the difference between a more open economy and a planned economy. The planned economy controls everyone and forcing everyone to the same mold, whereas the more open economy with a less intrusive government takes more indirect steps—like building cheaper housing and lowering general prices as a result.
Personally, I like the more indirect method because, first of all, it absolutely guarantees that there will be some cheap housing and, secondly, will most likely lower housing prices. The current Chinese approach of implementing laws to control individuals, and through them the economy, will only be as effective as much as it is enforced and as much as developers do not find loopholes in it. Besides, I feel that it is better to avoid a new law when direct action can solve the problem instead. Of course, I don’t understand real estate, and it is likely much more complicated than I know, but this is how I see things.
