1/7 According to Caixin, "China’s rental housing market is facing an unusual squeeze this summer: listings are soaring while rents keep falling, underscoring a supply glut that landlords are struggling to absorb." https://www.caixinglobal.com/2...
2/7 This is why I've often argued that one of the most common proposals to shore up property prices—getting local governments to buy up empty apartments and funding these purchases offering out cheap rentals—would not help stabilize property prices.
3/7 The problem is that with rental yields in China already so low (below 2% on average), it only made sense to buy an apartment, as opposed to renting one, if you were certain that property prices would rise.
4/7 So if local governments tried to stabilize property prices by buying up empty apartments and offering them out at "affordable" rents, this would inevitably put downward pressure on rents, which in turn would put further downward pressure on property prices.
5/7 This seems to be what has happened. According to Caixin, part of reason rental price as are plummeting is that "long-term rental apartments and government-backed affordable housing are attracting more young tenants."
6/7 Plummeting property prices, by the way, are not necessarily bad. They represent a transfer of wealth from owners of multiple apartments to those who need them, e.g. the young and the poor (and musicians and artists, I might add), and that is overall a good thing.
7/7 But losers tend to cut back on spending faster than winners increase it, and so what's good for the economy over the long term can still be painful over the short term. Outside top-tier cities, I expect property prices to decline for at least another few years.
@michaelxpettis Wait! Building houses reduces the price of housing?!!
@michaelxpettis makes me wonder what impact (if any) this could have on fertility. high housing prices in western countries are often considered a factor in not having kids. probably need a cultural shift away from needing to own a home before starting a family tho
@michaelxpettis Oh no rents are more affordable.
@michaelxpettis Where will Chinese money go next? A big rush overseas?
@michaelxpettis It’s amazing how well things have held up. China had 125m 20-24 year olds in 2010, that is down to 80m today. That is such a huge decline that it’s shocking things are not worse.