The Determination Theory and Control Approach of Reasonable Housing Prices

Jin-Xiaoming

Zhejiang Dongfang Vocational and Technical College Wenzhou City Zhejiang Province PRC (Postal Codes 325011）

Abstract: To face soaring average housing prices（Hp）, the Government should reduce Hp or raise wages? This involves the interpretation of reasonable Hp. The connotation of reasonable Hp is in the coefficient of Hp-to-Income (CIP )= (0,4] to maintain moderate high Hp, to maintain the simultaneous development between science-technology and productivity, Land outputs rates, the rate of economic growth and Human being evolution; the extension of reasonable Hp is to keep Hp and GDP, wages,price promoting evenly.To stabilize Hp is development the Hp function to establish a fair Hp tuning mechanism, So we ask the economic policies of the government to meet the Hp structure as same layout as the Mountain Style(HMS)，to maintain direct proportion between GDP, wages and Hp(PGWH), to follow the law of synchronizing traveling of all prices(LSTP). On the contrary, simple significantly reduction of Hp is a poor choice. It would endanger the financial system safety and shake the lead of national economy.

Key words: Reasonable Hp; PGWH; HMS; LSTP; Real Estate economic Issues; Determine and Control

 

1. Two Hp definitions and their reasonable data standard

The connotation of Hp is defined as meaning: somewhere Hp equivalent to CIP^[1] is multiplied by an average wages of a month(Wa) for all the social local inhabitant, that is Hp = CIP × Wa. By the formula we know that CIP is the basic price theory coming from the purchasing power to reflect the coefficient of Hp-to-Income. 3 is located in the CIP = (0,4] interval, it demonstrate the inference correct that Hp is equal to the average monthly wage (labor price) three times, therefore, Hp can be broken down into three Hp / 3 of the composition. Such, this may make another function definition of Hp defined: Hp = (Hp / 3) × 3. The first Hp / 3 is for cost and profit for the developers, the second Hp / 3 is for land compensation and subsidy "Agriculture" to narrow the gap between workers and peasants, the third Hp / 3 is used to replenish the social security to reduce the gap between rich and poor. The contacts of the two Hp definitions is 3 in (0,4], which indicate that the Hp theory beyond the theory of value, the Hp should be more than ordinary goods and labor price two-thirds. This two-thirds bears macroeconomic adjustment function, make Hp be given to narrow the "three" gap function.

In fact, Hp is estimated to be 4 times of the Wa or 3 times of the average monthly income ,because individual income usually includes capital income, assets and other income , more than Wa. The coefficient of Hp-to-Income changing in (0,4] is a set of data standards to determine a reasonable Hp.

2. Exposition of Hp law theory and determination of real estate economic issues

We determine a Hp level, first to understand the Hp concept, second to grasp the Hp law.

First of all, average real estate prices (Hp) is always continually rising accompanied by technological development and the social evolution. There are three signs of social evolution: First, the progress of science-technology and the development of productivity; second, land appreciation and a rise in prices; third，Shooting Quantum(SQ) ^[2]--- currency sign abstraction of incorporating the ability and the desire into an integral whole large amount of release, GDP growth and people's livelihood improvement. In other words, the process of social development are the process of science -technology development, inflated currency, the appreciation of non-renewable resources (such as land) and labor. Now, the network speed being accelerated, trains, aircraft being accelerated, transport and logistics facilities being improved, These mark that the more science-technology developed, the quicker society working, and the earth is relatively increasingly small, land is thereby more and more costful. Currency sign's gold content is basically invariable condition, social development is the process of SQ large amount of release(manifested as the central bank issuing the currency),GDP growth, wage increase and Hp rising. Period, Hp, wages/GDP should be elevated in coaction.

Second, Hp ,GDP, Wa have direct proportion relations. In constructing Cities, it can not avoid everyone have to participate in the real estate market, so the real estate issue is a difficult point pulling the whole society, the lead of national economy. Clearly, real estate is not only an important component of GDP,but also the absolute power of creating GDP and pulling constructing cities.So Hp and GDP are direct related. GDP is operating results of the technology-productivity created by human beings, which should be shared by human being, and therefore the wage of workers with the GDP growth should be raised. Although the CIP is the coefficient of Hp-to-Income, considering the housing is not the whole investment of family or personal, it is closer to the real that the housing average price level( Hp) with Wa is direct proportion of the real estate, that is Hp = Wa × CIP. In fact, when GDP growth and Hp rising, wages may not increase. Rising wages in China in recent years are promoted mainly by civil service wage reform, actions that monopoly industries and management teams get more, whereas wages of workers in private enterprises is slightly incremental driven by the high prices and the high profits. Hp may not increase with GDP growth, as Hp in China before 2002 was about 2,000 yuan / square wandering up and down; Hp increasing in a single day may surpass GDP increasing and rise suddenly and sharply, as Hp after 2006 was speculation monopoly in the compensatory growth.

Third, the Hp structure as the same layout as the Mountain Style(HMS) with GDP growth. High or low of output rate of land is the reflections of development and application of science -technology productivity. Unit land outputs rates height in economic developed region reflect high GDP, when GDP is high, average income of the residents should be high. The rules of driving Hp soaring by high land output rate and high average income indicate HMS, the peak is in the city center and the foot is in the neighboring suburb. Due to different levels of economic development in different city, namely, city value has high or low, thus forming large or small mountain and high or dwarf mountain. These large and small mountain linked by "plain, low-lying land" of Hp --- village, formation the housing market "rivers and mountains" in the whole country, it is a striking resemblance with the Earth's surface.Motherland's “mountains and rivers” is owned commonly by the whole people, now hosted by the Government and acted for the people by good at value-keeping added value person. and therefore two-thirds of the land revenue should be allocated national basis consumption, that is given Hp macro-economic regulation and control function to reduce "three" gaps, such as distribute stock and social insurance among public, to strengthen social security system, and so on.

Fourth, the law of synchronizing traveling of all prices(LSTP). According to PGWH, Hp leads to rising once out of control, it is best first to stabilize, and then force labor costs- wages to rise first, and try to keep other prices up with Hp. This will ensure the industries profits rather, prevent the manufacturing industry funds to real estate market speculation. Fine-tuning subsequently, namely according to the two definitions of Hp to make Hp-to-Income in compliance with CIP = (0,4] constraints, based on increasing labor wages and reducing the "three" gap, govern all price structure. When the wide gap between the rich and the poor more than a certain maximum, several super high Hp do not affect the majority consumption, don't want Hp high, should restrain gap between rich and poor. So, people do not blindly complain about high Hp, do not fear a Japanese-style Hp crash. LSTP is that as development of scientific-technology and productivity, under currency sign's gold content is basically invariable condition, the Hp run from low to high, can only stable and may not be dropped. this is related to the security of financial systems, GDP steady growth, and the overall coordination of national economic development, and follow the law of the evolution of socio-economic with advances in technology.

In fact, from the reform and opening up, particularly since 2007, the prices of raw materials, agricultural products and labor-intensive products soared to varying degrees, except that violence speculation makes Hp too high in a small number of urban, the overall level of Hp is basic balanced with other prices, but the scale of throwing into fund to buy house is large, the effect to other consuming is large too. But for the Hp-to-Income far exceeds the CIP = (0,4] range, the case that macro adjustment function of Hp reducing the "three" gap has not been development, we cannot worry about the possibility of Japanese-style collapse, Hp become a focal point of everyone's vocal opposition is not surprising.

3.Determination whether a reasonable Hp and its adjustment method

 (A)To analyse reasons of skyrocketing Hp

Along with the development of science –technology and productivity, yield continuous increase in land, in the conditions of non-lowering monetary gold content, reflecting the GDP continuous growing. When GDP growth, wages should increase, thus prices and Hp should also improve. The fact is that before 2006, the Hp was rising around not; after 2006, Hp rose quickly, clearly compensatory growth of the Hp market chased GDP; in 2008, Hp soared, it pertains to the price habitual run and market speculation.During the unrestricted capital gains and the right sublet out of control, little change in labor wages, the emergence of the phenomenon of Hp more and more deviated from labor income. In recent years, Hp soaring, and that the situation of the average price level of housing equal to 10 times Personal average monthly wage is not unusual, far beyond the (0,4] interval, and the monopoly profits of the real estate was not reasonable in allocation to the "three rural" areas, but constantly rich crowd appeared overnight, quickly widened gap between the rich and poor. This prevented the release of the structure function of Hp = 3 × Hp/3,not only weakened the nature function of Hp to reduce the " three"gap, but also intensified polarization of the rich and the poor by social inequality, deteriorated the people's livelihood and inner product the economic crisis, which is not conducive to build a harmonious society.

That the relation of synchronize growth between Hp ,GDP/wages was not reflected was formed by what we do not know about the nature and law of Hp, and come to mishandle macro-economy.In the condition of the polarization of the rich and the poor, even if the wage levels of absolute majority workers is lower, the rich relying on capital to get abundant income who can still raise the average income level, by Hp = Wa × CIP, we can see Hp level will still high. So now the Chinese, on the one hand cry Hp high, most people's wages, income is so low that they can't afford housing; on the other hand, minority becoming rich overnight is common occurrence, the rich groups have increasingly expanded, income per capita vigorous growth, only strange is Hp no soaring！Following the Hp law system, people must ask the Government to maintain a GDP growth according to the level of science -technology and productivity, to raise working wages and to reduce capital income; based on CIP = (0,4] interval , government should give space for Hp speculation, control the height of housing market "top", to expand the supply area of house of prices in middle and low.

 (B) The concept of reasonable Hp

The connotation of reasonable Hp is stable moderately high Hp in CIP = (0,4] interval, to maintain the simultaneous development of science-technology and productivity, land productivity, economic development, and Human being evolution; the extension of reasonable Hp is to keep balance upgrade between Hp ,GDP, wages and price. To stabilize Hp can not expect human consciousness, can not expect the government, but to explore Hp functions of control the macro-economy, to set up fair mechanism based on Hp theory. Stable reasonable Hp is to meet HMS, requires the economy Policy to maintain the PGWH and to follow the LSTP. On the contrary, simple regulation Hp resulting in significantly lower of Hp is a very bad tactics, would endanger the financial system safety and shake the lead of national economy.

(C) The determination and adjustment method of reasonable Hp

Based on the concept of reasonable Hp, to comply with CIP = (0,4] range, to strict control the coefficient of Hp-to-Income is the basic method of determination and ensuring Hp reasonable.
     Hp can be predicted? six variables in Hp control formula can be adjusted, you will naturally predict. Knowing that from Hp = CIP × Wa, controlling CIP and observation wage levels can determine price trends. After 2006, why Hp soaring in China? Hp have been hovering before 2003 in China, and then start to rally in 2007, the main power of Hp surge is the growth of GDP year after year since the reform and opening up. With the industry of monopoly income increasing, increase of private enterprises and officials -businessmen, the implementation of the series policy of “housing reform”, in particular, liberalization of capital gains opportunities and gain amplified……That made more and more upstart accumulate wealt rapidly , the average income level of whole society was elevated rapidly. By the Hp = CIP × Wa, we know that the average wage(Wa) or personal average real income level would significantly grow, Hp inevitable rise. In the polarization of the rich and the poor condition, the higher the income level of personal average , the higher prices, the poor will be even poorer. Do you think that international popular on the experience formula of Hp equivalent to three times wage makes sense? In China, is Hp of ultra tens thousand yuan RMB per square meter reasonable? CIP = (0,4] reflects the upper and lower limits of Hp, indicating that the experience value of Hp equivalent to Wa three times is correct. The Hp control formula set up by CIP reveals that the soaring Hp by 2007 is related with GDP accumulated ten years rapid growth, but after 2007 most of Hp of ultra tens thousand yuan RMB per square meter formed by speculation and monopolies. Whether the price around is reasonable or not, Wa level of the local residents multiplied by 3 can be generally determined.

The fast algorithm formula of Hp =3Wa may help the government and people quickly determine a reasonable range of Hp, and help to make their own plans and arrangements. According to the Hp formula ,we can determine the month housing rent per square meter for Br = Hp× r, (r higher than deposit rates not higher than the lending rate in synchronization). CIP and per capita monthly income is the two factors of theoretical Hp estimated, the rent level is to reflect the market value factors of real estate supply and demand，the place of high rent can be considered good location. CIP explains the layout of house prices showed as a mountain, under the current policy, the China housing market “peak of mountains” is 4 times per capita monthly wage. To settle down related to the major total of people livelihood can not fully market-oriented, based on the state-owned land, housing prices can be estimated. From the Hp and CIP, derivation macro control principle evidence and measurement technology, and test data standard on Hp reasonable is entirely feasible.

Balance increase simultaneously between Hp, GDP and wage is the Hp reasonable signs. It can be said that China's current average price of housing is not very high, but wages are too low, and the currency depreciated too quickly. Therefore, people don't be too emphasized Hp and pierce foam, but a raise! To achieve a reasonable Hp, Hp control measures should be the best to stabilize the price, focus on increased wages, increased capital income tax, raise the price level in adjusting the price structure, then develop function to restrain the polarization of the rich and the poor in various adjustment "button" of Hp , capital gains, wages, wealth gap, and the price.

Unfortunately, nobody paid any attention to introduction of auctorial real estate prices research since 2006, but continued to use comparative research method and to refer to overseas economic development history, to infer the trends of China's economic developments, to forget completely that the experientialism in no scientific theory guidance and correction is doomed to failure. For example, the government, experts concluded unanimously that the high housing price is risk, so they once again to issue the regulatory policies to suppress Hp in the April 2010.The author indicated in debate with a friend that this regulation will be bound to make real estate as economic lead to swing down and will inevitably lead to overcapacity worse in building materials and electrical household appliances industry ,and housing supporting facilities industries , etc, and mapping to all industries, of three months, the GDP will be glissading. Sure enough，it come into being economic slow-down of marked decline in GDP in June the same year. The author's judgment expected regard to macro adjustments of real estate industry had echoes---National regulatory confront dilemma ! Afterwards, though people saw that the government suppressed the real estate prices to weaken the leading role of real estate to promote the development of national economies, but the government, experts do not understand the definition and function of Hp , can only continue to somehow control Hp despite declining GDP.

References:

[1] Jin Xiaoming. To Found the Regulation Formula of Hp --- CIP = (0,4] finded [J]. Value Engineering, 2007 (8).
[2] Jin Xiaoming. The Quantum Basic on Economics：Shooting Quantum [J]. Far Eastern Chinese business review  (Singapore), 2006 (1).

 

Brief introduction to the author:

Jin Xiaoming (1963 -), Male (the Han nationality) , born in Xinjiang county Jiangxi province PRC,

, senior engineer , 2008 Chinas Value 's Most Influential hundred experts. Study direction: Economic cybernetics and administration automation.

 

Fund Project:

①2009 education department research project Zhejiang Province PRC (Y200909572)；

②2010 wenzhou the fifth planning issues of social science Zhejiang Province PRC(Wyk10050).