Nature of the Overheating Real Estates and Failure of Government Intervention: The Economic Interpretation on the Local Government’s City-Operation Policies

摘要

At present, the irrational exuberance of Chinese real estate market lies in three facts. Firstly, the middle class, especially workers, alarm on the excessive artificial high price. Secondly, social capital, including hot money is in the proliferation and excessive speculation. Thirdly, local governments pursuit of high GDP growth and therefore, over rely on the real estates. Clearly, the adoption of appropriate industry and price regulation policies is an effective government intervention based on market failure and will help the real estate markets rational. However, the current intervention on real estates cannot effectively prevent the overheating real estate market and the speculation, resulting in a serious threat to the establishment of a harmonious society and the healthy development of the national economy. The analysis of herding behavior model shows that the city operation transmission mechanism of local government amplifies the herding behavior of the imbalance between the supply structure and the real estate market. The marginal cost pricing model of the real estate market and the deadweight loss model of the revenue also show that different regulation policies should be taken for different types of real estate markets and different target groups. With the help of welfare economics, we know that the endowment improvement of real demanders is the fundamental way to save the speculative and overheating real estates.