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Why didn't D.C. think of this? With property prices falling, the Shanghai government has banned...
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Wednesday, October 26, 2011, 8:01 AM ETWhy didn't D.C. think of this? With property prices falling, the Shanghai government has banned one developer from offering a discount of 30% to prospective buyers. From this point forward, any break of more than 20% will have to be approved by regulators.
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If demand and supply are not allowed to equilibrate, then, unsustainable distortions are introduced that will have greater impacts later. For example, when politicians introduce "price controls" (as Nixon did in the '70's) --more typically to prevent higher, not lower, prices-- then, supply gets "hoarded" (reduced), as some suppliers are unwilling to sell at the artificially-created lower prices. If politicians peg prices artificially higher, then demand will get hoarded, which certainly does nothing to sustain prices or the underlying contractors and suppliers in the industry, and it will lead to an even greater price collapse later, as demand withers.
To make China's policy work they'd have to not only peg prices, but make it a crime for people not to buy those houses at those prices. (Hey, come to think of it, that's rather like Obamacare, isn't it?)
I suppose it's a personal judgment which is the case here---I go for the latter.