Assessing Policy Tools for Stabilizing the Real Estate Market
ZHANG Bin, ZHU He, DU Yuchen
ZHANG Bin
Institute of World Economics and Politics, Chinese Academy of Social Sciences
ZHU He, DU Yuchen
CF40 Institute
Abstract: From the perspective of stabilizing the real estate market, the key policy priority lies in stimulating housing demand and stabilizing housing prices.
Changes in housing prices stem from interest rates, rents, risk premiums, and other shocks. The decline in housing prices over the past five years can be understood as the decrease in interest rates being insufficient to offset the decline in rents, the rise in risk premiums, and shocks during specific periods (such as delivery risks, the pandemic, etc.). After five years of housing price adjustments, the price-to-rent ratios in megacities such as Beijing, Shanghai, and Shenzhen have fallen from high levels to levels similar to those of megacities in developed countries. In other major cities, the price-to-rent ratios are even lower.
Under a neutral scenario where inflation and rents show steady growth, housing prices in Beijing, Shanghai, and Shenzhen still have room to rise. Under a bearish scenario (drawing on the Japanese experience) where prices remain persistently subdued, housing prices nationwide still face significant downward adjustment pressures.
The key to stabilizing housing prices lies in countercyclical policies, while the role of other types of policy tools is limited. Interest rate policy is particularly significant, as it can support the recovery of housing prices through multiple channels, including lowering discount rates, reducing risk premiums, and increasing rental income.
Since 2021, China’s real estate market has undergone five consecutive years of deep adjustments. Nationwide real estate development investment declined from a peak of 14.7 trillion yuan in 2021 to 8.3 trillion yuan in 2025. Real estate prices have fallen significantly; since 2021, the average housing prices in megacities such as Beijing, Shanghai, and Shenzhen have dropped by 23%, while the average housing prices in 30 major cities, primarily provincial capitals, have decreased by 34%. Whether compared with China’s own history or with adjustments in real estate markets of other countries, the duration and depth of this round of real estate market adjustments are unprecedented. As the largest cyclical sector in macroeconomic operations, the prolonged downturn in the real estate market has exacerbated the weakness of domestic demand in China.
After years of discussions on the real estate sector, there have been numerous suggestions on how to stabilize and promote the healthy development of the real estate market, with perspectives being quite comprehensive. Representative suggestions can be categorized as follows:
1) Supply-side measures focusing on “land acquisition and inventory reduction,” emphasizing the activation of existing housing stock through government intervention.
