To buy or not to buy? That is a difficult question at a time when housing prices are rising again in major cities such as Beijing and Shanghai. Albeit, the authorities are taking measures to curb speculation in the housing market.

The annual Central Economic Work Conference in December announced that solving the housing problem in major cities will be one of the eight major tasks of the government in 2021. The conference also mentioned that reforms on both the supply and demand sides should be carried out to achieve a dynamic equilibrium in the housing market.

The housing market has become a key obstacle in China's high-quality economic development. In some ways, the frictions in the housing market had hurt the demand for, and supply of, non-housing goods and services in Chinese cities.

In the past 15 years, housing prices have increased by 10-15 times in metropolises such as Beijing, Shanghai, and Shenzhen, while the rise in the income of people in these cities has been relatively low. For example, the price of an apartment could be 30 times a family's annual average income.

The insufficient development of the rental market is a key manifestation of the problems plaguing the housing sector. Homeowners and real estate developers tend to sell rather than lease out homes, in order to earn quick money. The shortage of rental housing led to the quick expansion of house leasing platforms, which couldn't resist the temptation to grab a larger chunk of the market and kept increasing the rents only to fail one after another.

Tenants have to pay high rents and yet face uncertainty because of vague rental agreements, and lack the rights enjoyed by homeowners. As a result, many are forced to leave the major cities and seek employment in second-or third-tier cities where house prices are lower and rental housing is more readily available.

Solving the housing problem in big cities is necessary to facilitate China's high-quality economic development, said the Central Economic Work Conference while emphasizing the importance of government-subsidized housing, house leasing programs, and long-term tenancy housing policy to ensure tenants enjoy the same rights as homeowners.

But implementing the program is a big challenge because of three reasons. First, it is difficult to find land to build rental or rental housing. Even though the central government has vowed to promote a favorable land policy for lease housing and asked local authorities to supply land for such projects, incentive schemes and regulatory accommodations still remain to be developed. One potential pathway is to transform unused or abandoned factories and markets into rental housing communities.

The second challenge is how to ensure that tenants enjoy the same rights as homeowners in cities. According to a plan, in big cities such as Beijing and Guangzhou, the children of "qualified tenants" and homeowners will enjoy the same rights in getting admission to nearby government schools for the nine-year compulsory education. But this cannot be guaranteed unless adequate school seats are created.

And the third challenge is how to evaluate the real benefits－such as lowering the living cost－of the policy aimed at solving the housing problem in major cities, building a system to assess and incentivize officials' performance in solving the housing conundrum, and ultimately improving the spending power of the people.

Increasing people's discretionary income is such a measure. Unlike disposable income, discretionary income is the amount of after-tax money freely available for spending, after basic housing and food costs are paid. A healthy rental market can reduce the basic housing cost, and increases people's discretionary income. Systematically calculating discretionary income, and using it as a guide for devising a housing policy can help determine whether the measures aimed at solving the housing problem in major cities are yielding the desired results.

The author is an assistant professor of finance at the Guanghua School of Management, Peking University.

The views don't necessarily reflect those of China Daily. 

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