High housing prices constrain domestic demand
Hangzhou News   2021-08-25 14:09   Source:China Daily

Although the novel coronavirus is generally under control, the weakening of residents' spending power, particularly that of the middle-income group is evident. The effects of the lackluster consumption ripple through the production, circulation and sales sectors despite the tremendous efforts the government has made to boost domestic demand.

While China's domestic consumption has not contracted markedly, the downward pressure on it is building up. This pressure does not stem from unemployment or inflation, which has been kept well within a rational range so far, but rather from the exorbitant housing prices.

The housing-price-to-income ratio, derived by dividing the median of housing price in a city with the median of family annual income, reflects the burden on families. The rational range of the ratio is between three and six according to the international conventions, and the spending on housing should be lower than 30 percent of residents' incomes.

However, the ratio in the first-tier cities of Beijing, Shanghai and Shenzhen is more than 30, and even in the second-tier cities, such as Hangzhou, Qingdao and Nanjing, the ratio is between 13 and 18. The average ratio of the 100 major cities on the Chinese mainland was 13.2 last year, and it is not rare for the housing loan repayments of urban families to account for well over half of their income.

In other words, the high housing prices have reduced people's spending power, and hollowed out the potential for future economic growth. The high housing prices also push rents to high levels, which not only restricts population mobility but also raises the cost of labor, which increases the costs for companies, which in turn pass them to consumers by charging more for their goods or services.

Statistics departments classify those with a monthly income of more than 10,000 yuan ($1,543) as being in the high-income group without considering their expenditure on housing, food, medical care and other basic needs. It is time to objectively reevaluate the true spending power of the middle-income group in the country.

And before the housing price can be brought down, which might hurt the revenues of local governments and thus their inputs in public services, as well as many related industries, it is unrealistic to bet the future of the economy on domestic demand.

Author:  Editor:Wang Jian