Home prices across China are falling, developers have gone bust and people are doubting whether real estate will ever be a viable investment again. The meltdown is dragging down growth and spooking investors worldwide.
Under the new strategy, the Communist Party would take over a larger share of the market, which for years has been dominated by the private sector.
Underpinning it are two major programs, according to policy advisers involved in the discussions and recent government announcements.
One involves the state buying up distressed private-market projects and converting them into homes that the government would rent out or, in some cases, sell.
The other calls for the state itself to build more subsidized housing for low- and middle-income families.
The goal, the policy advisers say, is to increase the share of housing built by the state for low-cost rental or sale under restricted conditions to at least 30% of China’s housing stock, from 5% or so today.
The plans line up with Xi’s broader push in recent years to expand party control over the economy and rein in the private sector. That push has included regulatory crackdowns on technology firms such as Jack Ma-backed Ant Group and more investment in state-owned enterprises in preferred industries such as semiconductors.
Xi is adamant that real estate, which for years propelled China’s growth and at one point made up around a quarter of gross domestic product, should no longer take on such an outsize role in the economy, the policy advisers say.
In Xi’s view, too much credit moved into property speculation, adding risks to the financial system, widening the gap between the haves and the have-nots, and diverting resources from what Xi considers to be the “real economy”—sectors such as manufacturing and high-end technology that he sees as crucial for China in its competition with the U.S. In some ways, Xi’s plans would take China’s housing market back to its roots. Decades ago, in the Mao Zedong era, the party controlled the market, with most Chinese people living in homes provided by their party work units.
In the late 1990s, when leaders started liberalizing the market, they initially envisioned a two-tiered system in which some people would buy privately developed properties, while others would live in state-subsidized housing.
Over the following decades, however, private developers like China Evergrande expanded rapidly and increasingly dominated the market. Today, more than 90% of Chinese households own their own homes, compared with around 66% in the U.S.
The shift to private ownership created enormous wealth in China. But the market’s explosive growth also sparked a debt-fueled bubble, priced many young families out of desirable housing, and dismayed Xi and other senior leaders who felt the country was straying too far from its socialist roots.
Michael Pettis, a finance professor at Peking University, says that if the government does significantly improve affordable housing, “it will represent the kind of transfer to the poor households that China urgently needs,” freeing people to spend more on other things. But he said it was too early to know how the plan would play out.
could take a hint from this playbook, although we of course won't.
would never