China estimate of the day

Mr Gan estimates that China’s existing housing stock is already more than sufficient for every household to own their home but developers are still supplying well over 15m new units a year.

There is more here from Jamil Anderlini in the FT, more than just the usual.


Oversupply of houses is common in Greece too, and I bet a lot of developing countries (here in the Philippines as well). This is because people don't trust banks, for good reason, as they practice financial repression. So your choice is between real estate and your mattress. Typically in Greece they build as they have money, so often you'll see a foundation laid and then it sits fallow for years until more money is accumulated for the next phase, which gives the appearance of a ghost town. Or, alternatively, it could be the Chinese overbuilt (as has happened here in the PH for the moment).


I have traveled enough to be quite familiar with the "building from current cash flow" concept, and the large number of unfinished properties you see (in some countries) as a consequence. However, China seems to follow the "borrow and build" model (like the U.S., Europe, Japan, etc.).

The "borrow and build" model typically produces finished buildings (of all kinds) or no buildings at all. Bankers know that a partially complete property, has a very high probability of defaulting on the construction loan. Hence the "don't start or be sure to finish" mindset.

In rural China, the "building from current cash flow" approach might be more widely used (unknown to me). However, urban China seems to be dominated by bank financed construction.

Homes aren't exactly fungible. A lot of the housing stock in poorer, rural China is extremely low quality and set to be abandoned or demolished and exchanged for newer, better digs at soon as they become available and it's financially feasible. These are the ZMP houses of the near future.

Ultimately, it's really hard to know what is going on given the quality of the data available from China. My guess is, prepare to be surprised by whatever is going to happen next.

how is that a guess?


Fair enough. It is the absence of a guess. Poor wording on my part.

I am never surprised to be disappointed.

A lot of that housing was built during the 1990s. How good is your GDP if it involves repeatedly replacing poorly constructed housing?

It depends. Does that involve breaking the windows on the old houses?

Exactly; the comparable housing redundancy figure for the US would likely also be striking. How much idle housing is there in the Rust Belt, even as the Sunbelt continues to boom?

In the USA in 2010, 14.5% of the housing stock is vacant with 9.2% being vacant year round. In 1995 (pre bubble), those ratios were 11.3% and 8.4%, respectfully.

Also, as far as new constructions:

It appears that the new construction rate in China is nearly 4 times as high per-population as it is here.

Housing booms and busts can be found a lot closer together than that. There are thousands of 'idle houses' in Detroit -- and even with renewed efforts to accelerate demolition, it's not clear they're being razed as fast as they're being abandoned. At the same time, 45 miles west in Ann Arbor, multiple new high-rise apartment buildings have been built in recent years (even throughout the downturn) and several new large subdivisions developments on the outskirts are getting started again.

The Southeast Michigan area (Detroit, Ann Arbor metros, some outlying areas) has a shortage of qualified construction workers. Homes can sit idle for several months between phases - build the basement, wait two months for the framing crew to be available, etc.

During the bust since 2007 many of them left the area or changed careers.

Chris S

Please post some data on construction wage trends in SE Michigan. Have real wages reached the 1973 level or are they still far below 1973?

I'd be surprised if Toll Brothers would jump into a 500 home project without having that figured out.

That sounds dangerously high, but I guess the 15 million new homes are for rich people moving in from abroad. Nice, affordable housing makes it easier to recruit Chinese nationals in STEM fields back home after studying abroad.

"A record 340,000 Chinese students studied at universities abroad last year according to China’s ministry of education." That means that at most there are around 100,000 (potentially) returning students per year.

Maybe not. "Most are tourists who come home. But rapidly growing numbers are college students and the wealthy, and many of them stay away for good. A survey by the Shanghai research firm Hurun Report shows that 64% of China's rich—defined as those with assets of more than $1.6 million—are either emigrating or planning to."

If you build it, they will come.

I was told by a Chinese national that tradition requires all newly married couples to move into their own houses. So, there's plenty of demand.

If only there wasn't that one child policy induced shortfall of females, they would have an additional 35 million plus households waiting to be formed -


India and China have similarly dire sex ratios at birth, creating millions of surplus males every year. In India, around 109 boys are born for every 100 girls, with the number going up to 120 in many parts. In China, the rate is around 120 boys, and up to 140 in provinces like Jiangxi and Henan .

The natural ratio is about 105 boys per 100 girls. Nature provides slightly more boys than girls at birth as males have higher mortality rates, so the ratio evens out by the time they reach reproductive age.

India and China have around 37 million excess men each. With the exception of Saudi Arabia, all other G20 countries have either more women than men or the numbers are almost equal.'

Those statistics are indeed tragic.

The Japanese are working on the problem. Their expertise in robotics... well, you know what I'm talking about.

People have no other options to invest their new wealth but real state. 76% of urban household assets are in real estate. The article author provides this data as support to the bubble hypothesis.

Compared to the 2010 US data, 62% of household assets are invested in the primary residence. US data shows how real state percentage of total assets varies according to annual income, median net worth and age. The most exposed population to real state price fluctuations are older people in the low income bracket. Until 60K a year of income, 50% of household assets are invested in real state

I don't worry about Chinese households having a lot of money invested in real state, they will somehow pay their debts. I worry about corporatism. Development business were created and expanded while being in good relationship with government officials. Developers may want to diversify their assets away from real state but that would signal that they don't trust the system. The risk is that bureaucrats force the new rich to keep investing in real state oblivious of offer and demand just to keep things going.

Why will they pay their debts? Chinese are already doing jingle mail in Wenzhou, Hangzhou, Ningbo and other cities. Chinese investors will do what is profitable and there is estimated to be 50 million empty homes (build and bought, but not lived in or rented), much of those held by investors.

A quick check of the statistics online shows that China already has roughly the same amount of living space per person as a low/middle-ranked European country. However, these number are not quality adjusted (and China's housing quality might be better than Europe at this point). Conversely, China is still moving huge numbers of people from rural to urban areas (and will continue to do so for decades).

See "Lack of affordable housing threatens China's urban dream" for a quote

"As a result, housing conditions in Chinese cities has improved significantly. Residential floor space per capita in cities increased from 43 square foot in 1980 to 340 square foot in 2010, although this is still much smaller than in the US (700 square foot per person). Three-quarters of households in cities/towns (85% of all households nationwide) were homeowners in 2010, compared to about 20% in the 1980s. Even though some apartments are owned with partial property rights due to subsidies, the rate of homeownership in China is much higher than in many developed countries. For example, the comparable figure in the US is just 65%."

See "Housing Statistics in the European Union 2010" Table 2.1 for some European data. Note that Americans generally have twice as much (or more) the living space per-person compared to Europeans.

A useful note is that the original FT article showed extreme home price to income ratios for China. That implies plenty of remaining demand to be satisfied by more construction. Of course, the demand might just be a temporary speculative bubble.

Overall, given the ongoing movement of people to the cities, my guess is that construction will continue on a large scale even after the current bubble bursts.

There are quite a lot of empty houses in many Chinese cities. People sit on second and third properties as investments, waiting for the middle class to get richer and buy them.

Meanwhile, tens of millions of units annually (at least!) are needed to provided adequate housing for people who cannot afford to buy those investment properties.

Probably many rich people are sitting on second and third properties which rarely get used by friends and family, and which will never sell at prices which they will accept, in buildings which will have to be rebuilt before there is a market for all of them, particularly given that new building hasn't ended.

I think many municipalities are adding special taxes on multiple properties to deter this kind of situation, but I don't remember where I read that.

Compare Beijing, where there are many empty condos, with Chongqing, where 15 or 20 year old housing stock almost entirely (maybe an exaggeration) needs to be replaced with higher quality construction to meet the expectations of new buyers.

What constitutes a household? If it's the group of people living in a home, then Gan's claim is true by definition.

Tyler's been predicting a China crash for longer than I can remember. One day he may be correct.


A China crash is inevitable at some point. The U.S. suffered numerous downturns on its path to economic success. Japan faced setbacks as well. So will China. However, the end result will be the world's largest economy (in China). That's the real story, in my opnion.

Great… and keep building.
In trying to achieve a post-scarcity economy and de-rail ridiculous notions like just-in-time supply, this is what is needed. A strategic housing 'reserve' which stabilizes prices and creates a larger 'landlord' base on top of other incomes will be the new pension and 'fixed' income. Housing is easily maintained, even when not occupied. Easy shift between renters and owners and quick disposal if a family needs to re-locate. Create services that enable short-term and hotel-like accommodation within this stock. Housing should be the new monetary policy throttle.

"housing stock is already more than sufficient for every household to own their home"

This begs the question of what is "sufficient" and who is defining it. It's wants vs needs all over again. A significant minority of Americans own their home -- but it's in a trailer park. Other Americans consider it highly desirable to have extra space in their houses, for guests, in-laws, etc. And the Chinese housing authorities track their population of troglodytes; literally tens of millions of Chinese living in caves.

China's housing market may indeed be in a bubble or state of oversupply, but simplistically comparing the housing stock to the population doesn't provide convincing evidence. How much space do they have, how much do they want (at a given price), and what is the quality of that housing stock?

Yeah, but upgrades are still possible -- a surprising number of Chinese still live in actual caves. Also, the existing housing stock falls apart pretty fast.

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