(Yicai) June 6 -- Many Chinese cities have started to relax house-purchase restrictions to allow people without a household registration, or hukou, to buy properties in the metropolis. This has given rise to concerns that it will worsen the disparity in the housing market as big cities will always be more attractive than the smaller ones. However, it is the population concentration in large municipalities that causes the price differential, not the relaxation of home-buying restrictions.

The real estate market is affected by supply and demand. Cities with large population inflows tend to limit the land available for construction, especially residential land. This pushes up the price of land and properties, and at the same time there is insufficient cheap public housing for rent, aggravating the housing shortage.

Meanwhile, cities with large population outflows have built too many new houses. The housing supply does not match the population density required to develop the service sector in the post-industrialization economy.

We need to meet actual housing needs in regions with population inflows and build more houses to offset the rising housing prices. And at the same time, we need to reduce the housing supply in the areas with population outflows, to avoid the waste of resources caused by properties lying idle.

Land Finance

Cities need to develop different policies regarding land and fiscal issues depending on their demographic trends in order to cope with changes in the real estate market.

Land financing policies in areas with a growing population should allocate resources to meet the housing needs of low and middle-income earners by using revenue earned from high property and land prices. While regions with a depleting population should not rely on land sales to sustain public services and infrastructure but instead need to depend on handouts from higher levels of government.

Regions with population inflows should leverage growth points in industrial development, such as manufacturing, the talent-intensive sci-tech innovation field as well as the consumer service sector.

They should take advantage of population inflows to improve efficiency in the manufacturing industry, and serve as consumer centers for residents in other small and medium-sized cities. The advantages of areas with population outflows lie in resource-hungry sectors such as agriculture, tourism and natural resources.

(The author is director of the Shanghai Institute for National Economy at Shanghai Jiao Tong University)

Editor: Kim Taylor