From the WSJ:
Leaders of the world’s No. 2 economy face a vexing problem: How can they get its people to buy more houses?
China has a surplus of them. The size isn’t clear — economists say official statistics don’t show the depth of the problem. But they generally agree that most Chinese cities are ringed with empty apartment buildings and residential developments with varying degrees of completion, from projects where the ground hasn’t been broken to fully finished apartments waiting for someone to move in.
…In March, the government had started rolling out loosening measures such as multiple interest rate cuts, looser home purchase rules, and tax reductions. That helped property markets in the largest, most affluent cities such as Shanghai and Shenzhen, which have seen prices recover to the point where they are beginning to look frothy. But many small and mid-sized cities continue to struggle.
A government think tank floated the possibility of tax deductions on mortgage payments. Others say officials could help by allowing lenders to securitize housing loans — that is, bundle them together and sell them to investors. That could lead to more money for potential homebuyers in smaller cities.
Another potential solution involves people displaced by development and urbanization. Typically, when knocking down hamlets and villages to make way for offices, malls and apartment buildings, local politicians make sure the displaced get put into newly built homes. Instead, China could take steps to help local governments purchase existing homes for the displaced, said Chen Sheng, who heads the government-backed China Real Estate Data Academy.
China’s vast rural population may be another answer. Right now China limits the mobility of its people by tying their social benefits to where they live, a system known as hukou. People with a rural hukou would struggle to get medical care or education for their children if they moved to a city.
There are a number of structural problems with the faster urbanisation approach to dealing with the housing glut. New immigrants are poor and brand new empty apartments are the most expensive in the world relative to incomes, and if sentiment on property prices has turned then nobody will want to buy overpriced houses that they can’t afford.
This might be part of the solution at the margin but it is no silver bullet. There is no way out of the Chinese property glut than the same way everyone else does it, prices and construction must fall until demand returns. The MB view remains that that is a process that will take so long that it ought to be considered a structural shift lower for everything related to housing construction.
