Is the Price of Urban Housing in China Determined by Market Forces?

AbstractEver since residential housing in urban China became commercialized in the late 1980s, the price of houses has increased rapidly from 408.18 yuan per square meter in 1987 to 3366.79 in 2006, or at an annual rate of 11.3 percent per year (see Table 1). Such price increases have been of great concern to the Chinese government and the Chinese people. At times the government attempted to regulate the housing market because it believed that the rise in prices was due to speculation. For example, purchasers of new houses were not allowed to resell them within two years without paying a penalty of 5% in the form of a business tax on the total transaction price. I would like to point out that the price of urban housing in China is determined mainly by the basic economic forces of demand and supply…