And yet China keeps populating these “ghost towns” over and over again. Almost like the term is nothing more than a xenophobic, alarmist misnomer.
If this was five years ago, I’d agree with you. But the Chinese national government has been clamping down on new construction for the past few years. China is also experiencing almost no population growth.
There was always going to be a time for China to stop building housing because the supply would eventually outstrip demand. Now seems to be near that time.
Holy shit everyone I think the MC’s lie from Goodbye, Lenin is about to come true!
There are two reasons why it is a problem for China.
First is that housing investment is a main way that Chinese people save for retirement. So if the market adjusts, you can have a lot of elderly Chinese who no longer have their nest eggs.
Second is that most Chinese municipal budgets are based on developing land. Without demand for new housing, Chinese cities are going to need bailouts from the national government.
That’s a good thing, right? It means there is no homelessness in the entire country, right?
Not so great if large aspects of your economic growth is tied to the real estate market. Theoretically the value of property is tied in some way to scarcity. If there is an abundance of housing, then there’s not a real reason for property value to mature.
If the rate of maturity is less than the rate of this inflation, then you are no longer creating an investment, you are creating debt. If a property investment group, a private bank, or state bank has over invested too heavily in developing the real estate market… there’s a pretty good chance that it’s going to have a hard time remaining in solvency.
This is an example of why a lot of people accuse the CCP of giving up on communism after the Deng reforms. Satiating the needs of the market too often conflicts with the needs of the people.
Theoretically in a planned economy you would be correct. There’s no motivation too build too many homes, nor is there is there a scarcity of homes. Both scenario are conditions of a capitalist market reacting to the perceived needs of the consumer or the market.
In a planned economy, it wouldn’t be unexpected to over-build. In fact, it perfectly makes sense, same as we would over produce a small surplus of anything. Housing isn’t ten I to create, and so having reserves ready for use when they’re needed in the future is a good thing. It may be bad from capitalism perspective, because you aren’t getting a great return on the investment yet. But from a planned economy perspective it’s good.
