The Impact of Two-pillar Policies on Real Estate Prices in China

Abstract

Since the turn of the 20th century, China's real estate industry has been expanding, playing an increasingly vital role in fostering the growth of the national economy. On the one hand, rising housing costs can stimulate the growth of linked companies. Nonetheless, it also causes a number of social issues. Through theoretical research, this study examines the impact of two-pillar policies (monetary policy and macroprudential regulations) on real estate values in China. The analysis reveals that quantitative monetary policy influences real estate prices via credit scale, whereas price-based monetary policy influences real estate prices via loan interest rate. However, there is a tension in monetary policy between "boosting the economy" and "stabilizing property prices". When monetary policies govern housing prices, macroprudential policies, particularly LTV instruments, can avert systemic problems and compensate for the spillover effects on the real economy. Consequently, it is imperative to establish and enhance the regulatory framework for two-pillar policies.