China’s Housing Crisis Is Worse Than It Seems
“But the number of Chinese urban dwellers aged 28-32 peaked in 2019 – and the real-estate bubble burst shortly thereafter. Now, the real-estate sector – which, at its 2020-21 peak, contributed 25% of total GDP and 38% of government revenue – is blighted by weak demand, falling construction, and severe overcapacity. Declining prices have decimated household wealth, with losses equivalent to China’s annual economic output. This has undermined consumption, employment, borrowing, and investment.”
“The crisis that is brewing in China is more severe than the one Japan faced. For starters, China’s housing bubble is much larger. For example, residential investment, as a share of GDP, was about 1.5 times higher in China in 2020 than in Japan in 1990. Property accounted for about 70% of Chinese households’ total assets in 2020, compared to around 50% in Japan in 1990. China’s price-to-income ratio today is more than twice that of Japan in 1990.”
“Moreover, China’s fertility rate is lower. Whereas Japan experienced a second surge of first-time homebuyers a decade after the first, China can look forward to no such thing. The share of the population over the age of 65 is increasing much faster in China than it did in Japan: it took Japan 28 years to get where China will get between now and 2040. During that period (1997-2025), Japanese GDP growth averaged just 0.6% annually.”