AI Wealth Truth (44): Why Some Cities Keep "Purchase Restrictions" Without Increasing Supply

I. Here is a phenomenon: some cities say home prices are too high, so they impose "purchase restrictions". The restrictions last for years, yet prices stay high. Why not increase supply to push prices down? Because high prices are the goal, not the problem.

II. Let us understand the fiscal logic of local governments:

III. Local governments need money to function. Where does it come from? Some is taxes. Some is transfer payments. But a large part comes from land sale revenues. Selling land is a pillar of local finance.

IV. How important is land revenue? In some cities, land-related revenue can be 30% or even more than 50% of local fiscal income. Without it, local governments may not be able to pay salaries or service debt. For local governments, selling land is a necessity.

V. How do you sell land at a high price? Prices are high only when supply is scarce. If a lot of land is supplied, land prices fall. So local governments have an incentive to restrict land supply. Scarcity marketing pushes up prices.

VI. How do purchase restrictions fit this game?

VII. On the surface, purchase restrictions are meant to "suppress home prices". In reality, they create panic and scarcity. "If I do not buy now, I may not qualify later." "The purchase quota is precious. I must use it." Restrictions create a stronger buying impulse.

VIII. Restrictions also control the pace of transactions. If restrictions are lifted, demand might be released all at once and then exhausted. Restrictions release demand slowly, so local governments can keep selling land over time. Restrictions are a valve that regulates demand, not a switch that turns demand off.

IX. Why not increase supply? Because increasing supply pushes prices down. Lower prices mean less land revenue. Then local governments cannot service debt or pay salaries. Increasing supply conflicts with local-government incentives.

X. How severe is local debt? China's explicit debt plus implicit debt (through local government financing vehicles) may exceed 100 trillion. In many places, interest payments are close to, or even exceed, fiscal revenue. They can only keep going by selling land. Land finance is drinking poison to quench thirst, but there are few alternatives.

XI. This creates a vicious loop:

XII. sell land to service debt -> land prices must be high -> supply stays restricted -> home prices stay high -> residents cannot afford -> incomes weaken -> even more land sales are needed to service debt... This loop has no automatic stop mechanism.

XIII. There is another interest group: existing homeowners.

XIV. If you already own a home, you want prices to rise. If prices rise, your asset appreciates. If prices fall, your asset shrinks. Homeowners are supporters of high prices.

XV. In a city, homeowners usually have more political influence than non-homeowners. They have more money, more organization, and more voice. Local policy often leans toward protecting homeowners' interests. Non-homeowners are the silent majority.

XVI. Developers also benefit from high prices. Developers earn the spread between buying land and selling homes. If they acquire land cheaply and sell homes dearly, profit is maximized. Restricting land supply helps maintain high sale prices. Developers, local governments, and homeowners form an interest alliance.

XVII. Will the AI era change this structure?

XVIII. There may be some changes. Remote work reduces dependence on core cities. AI may create new employment hubs. Population may become more dispersed. The population pressure in core cities may ease.

XIX. But fundamentals may not change. Local governments still need revenue. Selling land is still the easiest way. Homeowners still want to protect their assets. If the interest structure stays, the policy direction will not change fundamentally.

XX. How should you understand this system?

XXI. 1. Do not take policy slogans at face value. "Regulating home prices" is the stated goal. The real goal is "keeping prices high without a crash". To read policy, look at outcomes, not declarations.

XXII. 2. Understand the interest structure you face. You want cheaper homes, local governments want expensive land. You want more supply, existing homeowners want less. Your interests conflict with many others'.

XXIII. 3. Do not wait for policy to help you. Policy is not designed for non-homeowners. It is an outcome of multi-party bargaining, and non-homeowners are the weakest party. Expecting policy to change for you is naive.

XXIV. 4. Consider alternatives. If a city's rules are unfavorable to you, choose another city. Different cities rely on land finance to different degrees. Find an arena whose rules are more favorable to you.

XXV. Purchase restrictions without increasing supply is not a contradiction. They are two tools serving the same goal. The goal is to maintain high home prices, because high prices benefit both local governments and existing homeowners. Once you see the game, you stop asking: "Why restrict purchases but not increase supply?" In the AI era, remote work may give you more options. But the interest structure of core cities will not change easily. This is a game you need to see clearly.