The Economist

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