The first line of this paper speaks volumes in terms of how any/all analysis of the housing market in China is flawed due to a shortage of long term data.
Jing Victor Li from the Hang Seng Management College starts his work off as follows; ‘Before the establishment of China’s real estate market in 1998,..’ [My bold and italics]
In developed markets we can say things like ‘normally’ and be referring to a data series that might be over 100-years in length, or more; but in China there is no ‘normally’ for much present day economic activity.
Putting this caveat aside the paper attempts to answer two questions. First, is there an affordability problem for potential home buyers in China and second, what has been the trend?
Like a number of papers we’ve seen this one concludes there is no affordability problem, for most. To note that home prices in China are at all time highs is to conveniently ignore that so too are wages, savings and productivity. There’s really no disconnect between higher home prices and improved standards of living. In fact the average amount of space enjoyed by the population is significantly higher now than it was was when many enjoyed practically ‘free’ accommodation not so long ago.
The big problem is encountered by the less well off. Their chances for home ownership have receded as income inequality has widened. This is not a China-only problem. The same pattern is observed in many more developed markets.
The author concludes though that building low cost housing isn’t the answer. The middle and lower middle class have a habit of crowding into that space. Nor is improved access to finance [A large part of the root cause of the GFC], banks don’t like lending to the poor.
The only solution to this problem that might really work would be to tax the rich on their property and redistribute the revenue to the less fortunate; and what do we think the chances of that happening are, even in ‘socialist’ China? Quite.
Perhaps the earliest recorded reference to this problem can be found in the Bible (Deuteronomy 15:11) ‘There will always be poor people in the land.’ and it recommended the more fortunate then ‘.. to be open handed toward your fellow[s]..’. Advice only sporadically and grudgingly followed even to this day.
This link will take you to the paper in full Is Residential Housing Affordable?
Happy Sunday.