As of October, 2016, China was in the midst of a dizzying
housing bubble. A month before, “economists at the Bank of China warned in a
report that worsening asset price bubbles were adding to a frothy market that
could result in trouble.”[1]
Shanghai’s average housing price was up nearly one-third from a year before;
prices in major cities like Beijing and Guangzhou were not far behind.[2]
The recognition of the bubble—which does not come easily—should have triggered
counter-cyclical measures by the Chinese government.
For example, the government could have increased the minimum
requirements for down-payments and even increased tax on purchases of
additional properties to counter the impact of speculators. Rumors alone of
these measures was enough in 2016 for many couples to file for divorce “so that
one partner could still be treated as an independent buyer” so as to be able to
buy additional properties as investments.[3]
That people would go to such an extreme based on rumors points to how
carried-away market bubbles can get. For this reason, increasing the minimal
down-payment and associated taxes even on a couple’s purchase of one property
may not be excessive.
Adding to the difficulty in curtailing the boom was the “growing
amount of American-style debt.”[4]
Long-term household loans (mostly mortgages) doubled as a share of total
official bank lending in 2016 through mid-October. In August, the loans accounted
for about 40 percent of all new loans, contrasted with just 20 percent at the
start of the year. The value of new home-loans as a percentage of all housing
sales surged to a record high. Underground lenders were also feeding the boom.
Unfortunately, the loans facilitated the role of speculators in the market, whom
I submit play a crucial role in any market-bubble.
Unfortunately, the loans stemmed from the lending oriented
to keeping the Chinese economy growing. As long as the government wanted to use
leverage as a fiscal stimulus for the economy, clamping down on
bubble-facilitating, long-term loans could only be difficult at best. Hence the
need for tightened government-regulations making the loans less easy to get,
especially but not limited to additional properties. One challenge for
regulators in such a context is to enable the poor to become homeowners even as
unnecessary home-buying is stymied until the bubble has been shrunk. In other words, regulators should have
distinguished home-ownership as a basic human right (and in this sense not a
commodity) from home-ownership as an investment—and these two in turn from
overall economic growth.
1. Neil Gough and Carolyn Zhang, “In
China, Property Frenzy, Fake Divorces and a Bloating Bubble,” The New York Times, October 16, 2016.
2. Ibid.
3. Ibid.
4. Ibid.
