Dual-track approach to treat housing ills

Many people believe housing prices are increasing rapidly because the People's Bank of China has printed a lot more currency notes than needed. But the fact is the other way round: The booming property market has generated the need for more currency notes.

In general, a piece of undeveloped land is almost worthless. And if that land is used for agriculture, it hardly creates any money, because it cannot be used for other purposes. But if the land is used for property development, it starts generating money. The reason is simple: The developer has to borrow money from a bank to buy the land, and then get more loans to build houses. When the houses are built, the buyers have to get mortgage loans from banks to pay the developer. All the steps in this process generate money, with higher housing prices generating more money.

Housing prices have risen in recent years for several reasons, including people's rising incomes, high-income people's investment or speculation in the property market, local governments' efforts to boost housing prices to increase their fiscal revenues from land sales, and the increasing eagerness of ordinary people to own a property.