By Don MacGillivray
Much criticism has been leveled at the City about housing development of recent years. It seems that the city is over building apartments that will remain vacant for years, especially when they are too expensive for the 25,000 people that can’t find affordable housing.
You might be surprised to learn that the housing crisis in Portland and in the United States is insignificant in comparison to the situation in China. China’s years of unprecedented growth is generating massive urbanization due to the movement of rural families to find employment in the growing industrial cities. Much of this has been due to the development of new, multi-family housing.
Research shows that roughly twenty-two percent of China’s urban housing stock is unoccupied. That is more than fifty million empty homes and apartments. Sections of cities built in China are unoccupied and are an example of China’s excessive construction boom.
It is believed by many that the economy will inevitably slow down and possibly even fail. Some call these China’s Ghost Cities. Housing accounts for approximately thirty percent of China’s gross domestic product. Rampant price increases shut millions of people out of the market, exacerbating inequality.
In 2018 investment in residential real estate was up fourteen percent. Household lending makes up twenty-two percent of their financial assets, and mortgage growth is now at twenty percent.
The median price for multi-family buildings in 2017 was $202 per square foot. That is about forty percent higher than in the United States where the per-capita income is more than seven times higher than in China.
China is experiencing urbanization at a massive rate and they are shifting from manufacturing to a service-based economy. This urbanization is the key to understanding China’s current housing situation.
Before the recent liberalization of Chinese markets, the country was overwhelmingly rural. Recently, however, rural dwellers have poured into the cities in droves for the employment opportunities, creating a frenzy of economic growth at a scale and pace unmatched in all of human history.
In the ten years from 2007 to 2017, according to Statista, the percentage of the Chinese population living in urban areas grew from around forty-two to fifty-seven percent representing a movement; over two hundred and eleven million people in just ten years.
The country’s urban population now accounts for around eight hundred and twenty million people, and by 2030, the McKinsey Global Institute estimated that the number will be over one billion, meaning almost another two hundred million people will be urban dwellers.
Thousands of researchers fanned out across three hundred and sixty three of China’s counties last year as part of a Household Finance Survey. Beijing’s efforts to curb property speculation, considered by leaders as a key threat to financial and social stability, are coming up short.
Holiday homes and the empty dwellings of migrants seeking work elsewhere account for some of the deserted properties, but purchases for investment are a key factor keeping the vacancy rate high. That’s in spite of governmental curbs across the country meant to discourage the buying of multiple dwellings.
Urbanization, moving families from the countryside to the city, is critically important to understanding China’s housing situation. However, there are Chinese cities where a few years ago there were many vacant apartment buildings and today, with the new industrial development, these cities are now populated with new tenants.
China builds first and relocates people second. What was a ghost city on the eastern coast of the country now has a population of five million people.
Many people not acquainted with China’s domestic economics believe they have a housing bubble. Western observers perceive this as a bubble, but because the Chinese economy is structured differently, it is not likely that there will be a recession in the housing market.
The housing market there still has a long way to go before saturation, but skyrocketing housing prices are negatively affecting the common citizen. This massive process of urbanization will likely create an ever greater demand for housing and shelter, driving up the housing prices even more.
Buying real estate is probably the most important investment a worker can make, but it is nearly impossible to do so with today’s wages earned from industrial jobs. Yet in the past the government offered the existing housing for sale at reasonable prices.
When China changed from a socialist economic model to a capitalist model many were able to invest in real estate years ago and they have benefited greatly, but those that wish to buy today find it almost impossible.
The government in China has made it a priority to tackle any potential overheating of the market, with requirements such as a mandatory twenty percent down payment on houses, and a limit on personal home ownership.
Over the past two decades government intervention and regulation has tried to slow down the increasing house prices, however real estate development is still expanding in large cities. With newly-built housing too expensive for individuals, large institutions buy them for speculation and rent them.
Part of the reason why this happens is that there is no national real estate market. Instead there are hundreds of local markets and the housing debt per-capita is very small compared with the housing debt in capitalist countries.
One hundred years ago Sun-Yat-Sen believed in the Henry George ideas about land reform. This was to tax only land and use it as the means of supporting the government. This removes the speculative incentives in property investment and it leaves the property improvements untaxed and easier to administer and manage.
It also frees capital from economically harmful taxation and promotes its more efficient use because it becomes more costly to leave land undeveloped. Should any crack emerge in the current real estate market, homes that will be offloaded will hit the country like a flood.
Singapore is an example where housing development has worked well with a combination of western and socialistic economic devices.
Portland may have lessons to learn from China, but clearly our problems are not so bad when compared to theirs. Somehow Portland needs to find more affordable housing without having the government provide it.