Have you noticed that the hottest economic news in China these days is not inflation, not free trade talks, not rising interest rates, but the price of property?

Everyone seems to be saying prices are going up too high and too fast, and they want the government to intervene in some way.

There is a Western proverb which basically says that if you ask four economists the same question, you receive five different answers. That means questions like these have no correct answer. When it comes to the price of a commodity, I believe the law of supply and demand should always apply.

There are two major groups currently debating this topic. On the one hand, the government says that if it fails to act, the average person will not be able to buy his/her own home. On the other hand, housing developers ask why the government should intervene. After all, no one forces consumers to buy, and therefore, developers say, the market should be left alone.

However, there are some secondary and inland Chinese cities which depend on the selling of property to raise enough tax income. They are forced to accept price controls simply because at least Shanghai seems to have bubbles in the property market.

As an architect and planner who practices in China and sees this issue first hand, I suggest the government should reduce demand for housing. Higher interest rates and higher down payments may not necessarily be the way forward. Without decreasing demand itself, prices will only go up.

There is also the question of whether current prices are too high. If Shanghai and Beijing are to really be international cities, there will, of course, be some areas where housing prices are much higher than elsewhere. This is surely the case in every international city and is a natural state of affairs. As long as buyers pay the necessary taxes, what is the problem?

In my opinion, the Chinese Government should do two things. One is to build more low-income rental apartments, like many Western countries, to cool the demand for housing. Secondly, they can remind people that getting married does not necessarily mean having to buy a home first. Newly-weds can rent a flat, can't they?

I believe only when demand for homes has lessened will prices come down. Chinese people, especially in Shanghai and other large metropolitan areas, have one of the highest home ownership rates in the world -- a whopping 80 per cent versus only 52 per cent in the United States, and 75 per cent in Japan. This kind of demand will not be hammered by higher interest rates. Instead, it will keep fueling price hikes as consumers feel an urgency and pressure to buy now or regret it later.

With the rising cost of energy, steel, concrete and labour, plus the fact that many government agencies are using land auctions to increase income, the price for real estate will only go up. If people buy less and rent more, prices will slowly drop to a reasonable level as investors and developers will need to be more careful about their returns on investments.

In addition, it is also the undeniable duty of the government to care for the poor and the needy. Increasing the supply of low-income rental housing units will immediately help reduce the so-called "house purchase anxiety syndrome."

For example, if the government announces it will build 100,000 flats for low-income workers to rent, around 200,000 potential house buyers will be taken out of the equation, thus creating an immediate chill in the real estate market.

The author, chief executive officer of the US-based J.A.O. Design International, is an expert with the State Council.

(China Daily April 28, 2005)