Although house prices are falling, more measures are needed to raise people's earnings so they have the money to buy

The continuing decline of home prices seems to confirm the right direction of ongoing real estate regulations, but the government should not depend on housing regulations alone to attain its target of promoting a reasonable price-to-income ratio. Practical measures are also needed to substantially raise residents' incomes as a way of lowering the current high ratio.

Practices in developed countries indicate that the median house price usually ranges from three to six times the average household income. The ratio, however, is more than 15:1 and even as high as 20:1 in some of China's first-tier cities, such as Beijing, Shanghai and Shenzhen.

At a press conference after the closing of this year's session of the National People's Congress in mid-March, Premier Wen Jiabao said current domestic house prices are still far from a reasonable level and that home prices should be in line with people's incomes. Wen's comments demonstrate the central government's firmer-than-ever determination to press for a deeper decline of the still unendurably high home prices.

According to the latest statistics from the Beijing municipal real estate association, the price of newly built commercial houses in the capital, which has been regarded as a weathervane of the country's housing market, was 19,516 yuan ($3,088) per square meter in the first quarter, a decline of 19.4 percent year-on-year. Yet despite this sizeable decline, 19,516 yuan per sq m is still far beyond the purchasing power of ordinary local households.

Statistics show that Beijing's per capita income was 32,900 yuan in 2011, a figure that means local reasonable home prices should be less than 6,000 yuan per sq m, or home prices should decline more than 70 percent to attain the desired price-to-income ratio of 6:1.

It is unrealistic to expect such a decline in house prices within a foreseeable period of time. The country's real estate regulations are mainly aimed at curbing speculation, lowering house prices to a reasonable level and promoting the healthy development of the housing market instead of promoting a drastic decline in prices. At a time when the cost of land, an important component of current house prices, has failed to considerably decline, the unilateral drastic decline of house prices within a short period will result in a concentrated downfall of some housing enterprises. This will add to the risk of loan defaults and have enormous negative effects on construction, steel and other upstream sectors. As land sales constitute the lion's share of local fiscal revenues, a drastic decline in house prices would also severely test local governments.

Despite the adoption of a volley of combined regulatory measures, from credit tightening to targeted purchase restrictions and the experimental imposition of a property tax, domestic house prices have not declined to the extent expected. Thus, the government might as well take practical measures to raise people's incomes as a way of aiding its efforts to reduce the exceptionally high price-to-income ratio.

China has witnessed a sustainable rise in people's incomes over the past decades, but its labor remuneration is still low in national economic aggregates. For example, Beijing's per capita GDP reached $12,477 in 2011, an equivalent to that of wealthy nations, but its per capita disposable income was only 32,900 yuan, 40 percent of its per capita GDP.

According to a recent survey published by the United Nations International Labor Organization, China's per capita monthly income is $656, less than the world's average of $1,480. It ranked 57th among the 72 surveyed nations. Although there are some who doubt about the accuracy of the survey there is a wide consensus that labor remuneration is low in China. Statistics from the National Bureau of Statistics show that China's per capita disposable income for urban residents was just 2,000 yuan a month in 2011.

A substantial increase in people's incomes will not only help the country realize its consumption-tilted transformation, it will also help ease the pressure on the government to promote a decline in house prices to attain a reasonable price-to-income ratio. At a forum held in Guangdong province in late March, Qi Ji, vice-minister of housing and urban-rural development, also said some cities should resolve the issue of high home prices through raising residents' incomes.

Tax reduction serves as an effective way of boosting people's purchasing power and the government has enough resources to reduce people's tax burdens. Statistics show that the country's fiscal revenues reached 10 trillion yuan in 2011, an increase of 24.8 percent year-on-year. In the first two months of this year, the fiscal revenues also surpassed 2.09 trillion yuan, a rise of 13.1 percent.

Reducing people's tax burdens would help the government achieve its target of promoting a reasonable ratio of home prices to household incomes.

The author is a writer with China Daily. E-mail: wuyixue@chinadaily.com.cn