US property policy mistakes teach vital lessons

When US housing demand started to drop in the 1970s, the government and Wall Street financiers loaded the market with enough liquidity to fuel three decades of home price growth. This strategy helped the country temporarily avoid the market downturns that battered Germany, Japan and several other developed nations, but monetary policy abuses and high leverage ratios struck with a vengeance starting in 2008.

There are many things Chinese policymakers can learn from the US property bubble.

Firstly, the government should take housing prices into account when drafting monetary policies, since excessive loosening can easily inflate the market.

Secondly, the government and banks should not offer extra support to mortgage seekers. Down payments should not drop too low and authorities should control borrowing among home buyers.

Fortunately for China, planners have maintained a relatively tight credit environment over the past decade. Plus, restrictions on home purchases and financial derivatives have helped the country avoid the sort of catastrophe that so lately struck the US.

The author is Yang Hongxu, deputy director of E-house China R&D Institute.