China's built enough housing for everyone. Where is it all?

As measures to cool the mainland's property market take ever more novel forms, the problem isn't a lack of supply, but a choice of policy

PUBLISHED : Wednesday, 03 April, 2013, 12:00am
UPDATED : Wednesday, 03 April, 2013, 3:28am

In the mainland's big cities - just as in Hong Kong - officials are struggling to contain rising property prices.

There, as here, home prices have risen so far, so fast that even a modest apartment is now beyond the means of the vast majority of first-time buyers.

In Beijing, for example, the asking price on a titchy 37 square metre (400 square foot) flat in a favoured suburb can now reach 3.5 million yuan.

That's the equivalent of almost HK$11,000 a square foot - a price that would be steep even in Hong Kong, where household incomes are twice as high.

In the face of mounting anger, authorities on the mainland, just like in Hong Kong, have promised to step up construction and increase the supply of new housing.

Yet mainland officials' latest attempts to rein in prices - in Beijing the city government has now banned unmarried residents from buying second homes - are a tacit admission that the real problem is not a shortage of housing.

Certainly the government's own figures indicate there is no lack of supply. According to data from the National Bureau of Statistics, since 1981 China has built an astonishing 39 billion square metres of housing "which has been appraised and accepted" - in other words come up to the designed standards.

No doubt many of the homes built in the 1980s are pretty shonky. Even so, over the past 20 years China has still built 28 billion square metres of new housing.

That's enough to provide a 62 square meter flat for every single one of the country's 450 million households. In Hong Kong terms that's more than 700 square feet of gross floor area for each three-member household - spacious by local standards.

Meanwhile, an estimated 200 million mainland city-dwellers still live in dormitories, basements, old air-raid shelters and other sub-standard housing.

Granted, some of the new housing will have been built in the wrong place, and no doubt some of it will have been demolished to make room for even newer developments. Even so, you have to wonder what's happened to all those homes.

Hong Kong offers a clue. According to the latest census, there were just short of 2.37 million households in the city in 2011, a number that has been growing by 1.2 per cent a year. And the government's latest Monthly Digest of Statistics says Hong Kong has a housing stock of 2.64 million units.

That means there is a surplus of around 240,000 homes. Yet prices continue to soar, and in one of the world's richest cities, thousands live in sub-divided cubicles and cages.

The reason is more monetary than property-related. Efforts by the world's central banks to stimulate their crisis-hit economies have swamped Hong Kong under a rising tide of liquidity.

With money cheap and plentiful, inflation running higher than interest rates, yet demand relatively muted, people have naturally sought a reliable haven for their wealth.

The answer they have come up with is property. Anyone with cash to spare has bought flats as a store of value, even if they just let them sit empty.

The same has happened on the mainland. In its efforts to maintain high growth, Beijing has allowed the supply of money and credit to balloon. And that money has flowed straight into the most trusted store of value there is: property.

It hasn't mattered how much new housing the authorities have built. As long as monetary conditions have remained so loose, prices have continued to climb - hence the Beijing government's latest attempt to crack down on people buying property as a store of value.

Hong Kong can't do much about its problem, but the mainland can. If the authorities really wanted to make housing more affordable, they would tighten monetary policy.

But that would prick the bubble and slow growth. Expect more tinkering, but no determined effort to tackle the real problem.