Editor’s Note

Is House-Purchase Lottery good to all? It is understandable that different people hold different views. Citizen Chen is a fictional character. Economics Professor Wang is also a fictional character. Their views are real. Professor Wang represents the author's point of view. The author suggests that we keep calm and give new policy some respect as the new policy can be somewhat feasible and reasonable.

Open Letter to Citizen Chen from Economics Professor Wang:

Keep Calm and Give New Hangzhou House-Purchase Policy Respect

Dear Citizen Chen,

Hangzhou is going to sell houses via a lottery system to prevent market irregularities. You have written a letter to me to show that you do not have enough confidence in the policy, as in your view, it regards important issue as a trifling matter, and you ask for my opinion as I can always give you new insights when facing confusions. I have got your concern about new policy. As a senior personage, it is even not very sure for me to know if the policy can work. However, many citizens may overestimate its unreliability. The same as many other parts in China, real estate market in Hangzhou has developed rapidly during last several years. But, while market develops, market irregularities appear unavoidably, making houses price higher and higher, indicating that real estate market in Hangzhou needs to be regulated. However, past policies have failed, which requires a new policy to be practiced. If we don’t try to find a way to solve the problem, it can lead to the financial crisis, and many lives including yours can be suffered by its damage. Therefore, I still suggest that you can keep calm and give new policy some respect as the new policy can be somewhat feasible and reasonable.

First, let us have a look at that whether real estate market in Hangzhou is experiencing chaos currently. According to the National Bureau of Statistics of China, the ratio of housing prices to incomes in major cities is higher than that in other countries, which makes ordinary Chinese citizens cannot afford to buy houses. Thus, it is difficult for them to buy houses, and Hangzhou is not an exception. Is it a good idea to just ignore it due to the free-market principles? I don’t think so. Because proportion of housing expend is too high, exports warn us that it can be difficult for average people to save money, so as to widen the gap between the rich and the poor. Even worth, as professionals such as economic expert Yang Huan warns, it buries time bomb for economy growth and social stability, and if the bomb explodes, it may lead to immeasurable consequences. Such problems should not be ignored. In response to above problems, we can reach to a consensus that the governments need to take some appropriate measurements to control irrational behavior in real estate market effectively.

Then, you might say there are some measurements the government has already taken to save the day. If we take a look at the past policies, we can see that, yes, many policies have been introduced, but most of them, however, have been actually failed or have a hard time to be implemented. For example, expert Yang reminds us that tax policy can keep irrational demand within limits, but, the policy cannot put into effect due to the conflict of financial interests between central government, local government, and other institutions. This technical problem cannot be solved easily, and it is a better idea to do something local government can do it by itself to response to this urgent issue as soon as possible.

So what have been done before? In the last decade, it is found by academia that house price and land price have positive correlation. Based on this, the government in Hangzhou tries to limit land price to deal with the problem like some other cities in the past. However, lowering land price cannot work in Hangzhou as the land is too limited, making it hard to cut off the land price. By the same principle, many policies been introduced in Hangzhou have failed. It requires us to find a new way to solve the problem in Hangzhou real estate market.

So, it seems that we do need another solution. How to make sure we can find a new way which is effective and not failed again? Before finding a new policy, let’s consider what leads to chaos in real estate market, and why past policies fail. First, we have to understand that as economic researches show, irrational behavior in real estate market is caused by economic, social and cultural reasons, such as rapid urbanization process, fixed attitude towards houses, etc. Second, we have to know that there are obvious regional differences in real estate market in China, and even between cities and cities. Exports remind us that it requires local governments to make policies for particular places. Thus, Hangzhou government needs to find a policy which targets problems in Hangzhou. What can do the job? A lottery system may do it. The lottery system can control irrational behavior for buying the houses. Also, it changes people fixed attitudes towards houses as investment tools. Hangzhou has used the similar system to regulate car market. Although many people doubted with the policy when it was introduced, it turns out that car markets are get monitored effectively. So as this new policy is introduced, though no one is absolutely sure whether it will work well in Hangzhou, based on the past experience, it seems that it can be effective and practical way, and we may still give it a try.

At the end of the letter, let’s see where we can reach a consensus. First, we should see that the chaos does exist in real estate market in Hangzhou, and we need to look for policies to solve this problem. Second, other ways that have been introduced before failed due to the multiple reasons, and it is not supposed to fix the problems quickly. Now, Hangzhou is going to sell houses via a lottery system, it’s fair to all of us. Although it may fail as well, the lottery system works fairly well to deal with similar problems in car market. And I would like to emphasize that if we are afraid to take any actions, we are risking our economy and social stability, which is obviously not good. Thus, people who are not confident with the policy should anyway give it some respect, and wait to see if it works.

Sincerely,

Economics Professor Wang