China’s housing market is experiencing a major reckoning. Now the country is faced with a backlog of completed but unsold units, not to mention about one million half-built apartments. Yet, these immense challenges have propelled Beijing, China’s capital city, into the eye of the storm and indeed at the epicenter of this crisis. The housing sector had been a major engine of China’s rapid growth. Now, it is confronting unprecedented challenges, making it necessary to take new and immediate actions to ramp up that market.
The real estate sector has long been a cornerstone of China’s economy, contributing approximately a quarter of the country’s GDP before 2021. The current landscape reveals a troubling reality: an oversupply of homes coupled with a dwindling pool of buyers. According to the latest reports, new home sales in China fell 20.8% YoY in October. This sharp decline further illustrates the increased gulf between supply and demand in today’s housing market.
Now, China is staring down the barrel of a warehouse full of built but empty units. Meanwhile, a heartbreaking ocean of incomplete rental homes languishes, poised waiting hungrily for lifeline funding. That’s been exacerbated by investors holding onto a shadow inventory of second and third homes. Some of them we know have lost hope themselves in the market downturn. These combined effects make for a challenging backdrop in which far too many homes have excessive supply and not enough demand.
As a result, Beijing has become the world’s least affordable city for housing. The state shudders at the fallout from such a powerful and important sector to its economic fortune. As a response to the crisis, the Chinese government is responding as well. They’ve recently opened a proposal series to jump-start the housing market. These programs reduce up-front costs for homebuyers. Finally, they increase loan-to-value limits on mortgages and implement mortgage-rate easing in order to increase access to homeownership.
Moreover, in a bid to rekindle the dwindling demand in the depression-hit market, Beijing has relaxed buying curbs. The feds have intervened to protect these “zombie towers.” These are abandoned or almost-abandoned construction ventures abandoned in mid-work due to a lack of funds. These efforts show a serious effort to realize a fundamental change of direction in the housing market, but the way forward is fraught with challenges.
The first is the breathtaking rage of homes on the market. With too many completed, unfinished, and investor-owned properties vying for attention, the question remains: who will buy these homes? This disconnect between exciting new demand paired with an overwhelming abundance of supply is causing widespread fear for the long-term health of the housing sector.
Economists have proposed reconfiguring the ghost condos as public housing. This single change would do more than anything else proposed to bust up the current crisis. This strategy will help address the excess inventory of unsold units. Simultaneously, it will provide a huge amount of targeted housing solutions to Americans who need them. Successfully implementing these kinds of measures will take coordination, advance planning, and commitment of major resources from all levels of government and the private sector.