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[EDITORIALS]Inept housing policies

Published: 02 Jun. 2004, 22:24

The government and the ruling Our Open Party have agreed to abandon the plan to require apartment builders in government-developed sites to reveal their costs. Instead, they have nearly agreed to introduce a “construction cost-linking system.” Under the system, builders will be forced to set the prices of apartment units of up to 85 square meters (850 square feet) on government-developed sites at the land price plus a standard construction cost. Because the price of land in government-developed sites is low, the system could reduce the prices of new apartments in those sites by up to 30 percent, the government and the ruling party said. Then new apartment prices in neighboring ordinary sites would also drop, and even the prices of existing apartments could slide.
Will it work? If the prices of new apartments are cut, private builders will not build as many. And if the prices of new and existing apartments in the neighborhood stay high, apartments with lower prices in government-developed sites will surely become the target of speculators who want to take profit from the difference in market prices.
The government and ruling party also decided to convert the sale of new medium and large apartment units in government-developed sites from choosing buyers by lot at fixed prices to putting the units up for bid. That is likely to cause a rise in the prices of those apartment units. Considering that medium and large apartments have led the apartment price hikes, the plan may not work at all, and it goes against market principles by reviving rules on prices of apartments, at least partially.
The new system could aggravate distortions in the market rather than curb prices. Until now, the government has made housing policies without principles and frequently changed them to adjust to the domestic economic cycle. In addition, the government has failed to act quickly enough to let low-income people benefit from programs before speculators figure out how to squeeze out profits first.
The new housing policy should be decided on after more comprehensive and elaborate analysis of its positive and negative effects. Rather than such impromptu measures, an expansion of supply would be more effective in stabilizing housing prices.