Economic Compass: Dwelling on China’s Housing Risks
An in-depth analysis of the sustainability of China’s precarious-looking housing market and the impact it has on the country’s economic growth.
Eric Lascelles discusses whether the worries about a housing bubble in China are warranted and provides his outlook for Chinese housing.
- China’s housing market generates a remarkable 19% of the country’s economic output, and has been the subject of bubble worries.
- It merits close examination given stress testing that shows even a moderate housing correction would halt the country’s economic progress.
- The near-term outlook is fairly benign, with the pace of home building arguably running slightly below steady-state demand.
- Medium-term risks are quite negative, revolving around the fact that 29% of China’s housing stock is vacant.
- In contrast, long-term risks are more positive given what appears to be an inadequate number of homes relative to the number of urban households.
- Affordability is atrocious on the surface, but much more nuanced beneath it.
- Overall, Chinese housing still warrants a place in our pantheon of risks, but in a location of slightly diminished prominence relative to our prior assumptions.