What a disappointment.

Investors who heeded the rumor that the housing development/real estate industry would be the focus of the central government's 10th, and last, industry bailout plan, must have lost out.

Almost at the last minute, after nine "industry revitalization plans" had already been rolled out by the State Council, and despite a chorus in favor of government support to mitigate the effects of the economic crisis, the industry missed the last bus.

This is a good thing for the economy. There is no question that housing development, once on a fast track, can generate enormous demand, both for consumer credit and for supplies from other industries.

But the industry's importance in the economy does not naturally entitle it to government support.

There has already been so much social strife stemming from housing problems that if more incentives are thrown to the industry without sorting the existing problems out, things can only get worse.

The overall peak housing prices between 2007-08 were more than 200 percent up on that of five years ago.

In large cities, what was affordable for a middle-class family back then is now extremely rare.

At a time of economic downturn, if housing prices continue to rise, people suffering pay and bonus cuts, let alone those who have lost their jobs, will be increasingly thrifty.

This is not good, because domestic consumption, on which all the economy depends for its future as export prospects dim, will contract, not expand.

No economist from government think-tanks has published any study, with convincing data, showing how much the unbridled rise in housing prices stifle rather than encourage consumer spending.

But it is by no means hard to understand that if one industry's price level (and implicitly its profit level in certain processes) has exceeded the general income and spending level, it creates losses rather gains.

The number of empty high-rise office towers and shopping facilities barely filled by shops has been on the rise in Beijing. Every now and then, people are talking about the near collapse of some luxury hotels and expensive building projects.

In the meantime, ask young office workers in their late 20s and early 30s what their worst nightmare is as they're preparing to start a family, and all, except those who can still count on financial support from their parents, would say housing.

That amount of money could well be used by their retired parents to take a holiday, which would in turn benefit the airlines and the hotel industry; or could be used to even open a little retail service for the neighborhood.

Some international companies which invest in China have even gone so far to arrange internal housing loans to their local staff as a key incentive for them to stay. Some domestic companies also do that. But that deters, rather than attracts, investment.

These unhealthy symptoms all reflect the fact that Beijing actually does not control the housing development/real estate industry.

Nor is the industry working in response to supply and demand in the marketplace.

In fact, ever-rising housing prices only reflect the rising land prices that local governments charge developers. And the returns are used by local governments as a primary resource - for building new roads and sometimes new offices for officials themselves. Of course they would have no interest in providing low price housing to the citizens.

Without changing this weird system, the housing development/real estate industry can never play the role it is supposed to.

E-mail: younuo@chinadaily.com.cn

(China Daily March 2, 2009)