How high property prices can damage the economy
Research shows that high and rising property prices can have damaging economic effects by crowding out productive investment and leading to a misallocation of capital. Whatever the effects of high land prices in the West, the scale of the problem in China appears even bigger, given that the country’s investors have a huge appetite for real estate.
This article in The Economist references research conducted by Harald Hau, GSEM Professor, and Difei Ouyang, GSEM Ph.D. graduate, that concludes that a 50% increase in property prices would raise borrowing costs, reduce investment and productivity, and result in a 35.5% decline in listed firms’ value-added output.
> To read The Economist article, please click on the link