Housing Industry has played a great role in stimulating domestic demand and boosting economic growth，but housing market has also become the important source of current economic imbalances and financial risks。The research on the formation and evolution mechanism of housing market is of immeasurable significance to improve the well-beings of the public and to stable the economy and finance。As a commodity，houses could be both luxuries and necessities。The luxury nature of housing determines that it should observe market principle to meet the demand for housing，whereas the necessity nature of housing determines that the guarantee principle should be obeyed to meet the housing demand。The housing supply is decided by the quality of the houses，the supply rigidity of first-rate housing is high，whereas the supply flexibility of common housing is relatively high。
In housing market，the price of first-rate housing is largely determined by the relative purchasing power of the market，in other words，the larger the relative purchasing power of the housing market is，the higher price the first-rate housing is，vice versa。Nevertheless，common housing price is mainly decided by the absolute purchasing power of the housing market，in another word，the larger the absolute purchasing power of the housing market is，the higher price the common housing is，vice versa。The supply-demand nature and price-formation mechanism of the housing market determine that in most cases，only the first-rate housing could become the target of market speculation。Common housing could only be market speculation target with the precondition of land financing which means that the government intentionally limits the land supply for common housing to maximize the income of land selling。First-rate housing speculation is the main source of market risks，and common housing is the main origin of policy risks。
The housing market needs government regulation，but the main target of government regulation should be common housing market，and the government should make sure that the public could purchase common houses to meet their long-term living needs，in accordance with the guarantee principle。First-rate housing and renting housing should be the products of absolute marketization。First-rate housing is aimed at high-income people，therefore，the supply rigidity and demand flexibility of the first-rate housing determines that it should be allocated by the principle of the highest price obtained。Renting housing is aimed at floating population，and the short-term and uncertainty of renting housing determines that it should mirror the market cost。Public housing is the sole source to meet the long-term living demand of the residents who do not afford or are unable to purchase common housing，and public housing is an advantageous complement of housing market。Inappropriate government regulation will bring systemic risk to housing market。The big bubble of Chinese housing market is caused by the insufficient government intervention which is based on land nationalization，and is created by the excessive marketization of China's housing industry。On contrary，the breakout of 2007 sub-prime mortgage crisis in the United States was the product of excessive government intervention which was based on land privatization，and is caused by US government unilaterally pursued social goal while it ignored its financial capacity.
