The Relationship Between Systemic Financial Risk and the Real Estate Market: A Study Based on China

Since the founding of the People's Republic of China, the real estate system's reform and the market's development have undergone several pivotal phases. These include the planned welfare housing allocation system before the reform and opening-up, the comprehensive commercialization of housing, the establishment of a housing security system, and the creation of a dual system of renting and purchasing. Following the implementation of monetary housing distribution in 1998, the real estate industry emerged as one of the pillars of China's national economy, addressing the housing needs of a significant portion of the population. However, with the rapid economic growth and increasing urbanization, the marketization of the housing system has introduced numerous new contradictions and issues that demand urgent resolution. The investment attributes of commercial housing have been excessively magnified, leading to a swift surge in residential prices and spawning a series of social and economic challenges, such as housing affordability. As the disparity in housing resource allocation widens, the gap between the rich and poor in society has also progressively expanded, with the real estate bubble becoming increasingly apparent. At the end of 2016, the Central Economic Work Conference first introduced the concept of "housing is for living, not for speculation," followed by policies aimed at controlling house prices to prevent continuous increases. Post-pandemic, China faces a new wave of economic challenges with persistently weak domestic demand. Over the past year, the Chinese real estate market has experienced unprecedented stagnation. Despite the government's measures to stimulate housing demand, tangible results have yet to be achieved. This paper primarily employs a data regression model to deeply analyze the dual failure of government and market in developing China's real estate market, elucidate the mechanisms behind the formation of the real estate bubble, and explore how to prevent systemic financial risks.