Rental housing market needs time to develop

The rapid increase in house rents has drawn wide public concern, with some people blaming it on speculation and monopoly in the rental housing market. But we should not judge a market economy issue using ideology, because that would neither promote the nascent rental housing market nor meet the people’s housing demand, as advocated by the government.

There are two major economic reasons for rising house rents — increase of demand, and shortage of supply.

On the demand side, during the academic graduation season, mostly in August and September, many college graduates look for accommodation outside campuses after leaving their dormitories. That raises the demand for rental housing, which in turn pushes up house rents. But this is a short-term seasonal factor.

The fact is, thanks to the restrictive housing purchase policies, the demand for housing purchase has been curbed. And since the housing prices are still high, some of the demand for purchase has been transferred to the demand for rentals. As a result, house rents have risen further. In addition, other economic and social factors such as monetary easing policy and rising prices have also contributed to the increase in house rents.

On the supply side, the rising house rents show the rental housing market suffers from a shortage of supply. Besides, the compulsory demolition of unfit or ill-equipped low-end rental housing in some big cities, such as Beijing, has caused a severe shortage of such rental houses. For these reasons, the rental housing market needs time to develop.

Since multiple factors have contributed to the increase in house rents, it is not fair to blame only monopoly or speculation in the rental housing market for it.

There is no denying that monopoly capital violates the rules of fair market competition. But monopolies form because of the lack of strict market supervision. Moreover, no market, let alone the rental housing market, can develop without capital. So demanding that capital not be allowed to play any role in the rental market, because of its profit-seeking nature, is like throwing the baby out with the bathwater.

The development of the rental housing market in China lags far behind that of the commercial housing market. The existing structure of the rental housing market is focused on individuals rather than organizations. As a result, there has been little improvement in the quality of rental housing, services and management, which in turn has impeded the development of the rental market. In fact, the lack of sufficient capital is one of the prime reasons why China’s rental housing market remains relatively less developed and why short-term monopolies have formed in the market.

The 19th National Congress of the Communist Party of China announced that housing construction should be aimed at establishing multiple sources of supply of both ownership housing and rental housing units. The Ministry of Housing and Urban-Rural Development’s documents on developing the rental housing market in large and medium-sized cities with inflow of people also encourage the development of State-owned and private institutional and largescale rental housing enterprises, so as to modernize the rental market via the use of capital, so that low-price rental housing can be provided for those in need.

The authorities cannot solve the rental market’s problems by just reducing the high house rents in the short term. Instead, they should focus on developing a modern rental housing market by, among other things, asking local governments to accelerate the construction of low-price rental housing and encouraging real estate developers to offer more rental housing. The authorities should also tighten market regulations and supervision of private capital injected into the rental housing market. The author is a researcher at the Institute for Urban and Environmental Studies, Chinese Academy of Social Sciences.