The China Housing Bubble Wants To Grow

Household incomes in China are soaring and consumers are still bullish about real estate, according to a survey by Financial Times:

The FTCR China Consumer Index was hovering near a multiyear high in July, amid signs that appetite for real estate has not been diminished by the government’s tightening efforts. […]

Although there has been a high-profile campaign to rein in soaring house prices, our measures of sentiment towards buying homes — either to live in or for investment purposes — were both above 50 for only the third time in the six-year history of our consumer survey. Forward-looking reads of consumer sentiment were also well above last year’s levels, signalling that households expect conditions to continue improving.

This upbeat consumer sentiment suggests a problem for Chinese authorities trying to curb the housing market: the bubble wants to grow. Chinese consumers have more money than ever, and they still want to buy more real estate.

This isn’t surprising, since government market manipulation has been making housing a one-way bet for decades. Consumers seem to believe that the political power of the Real Estate Lobby (construction and infrastructure companies who get rich off the boom, local governments who use real estate sales to fund their operations and feather their nests, the Chinese middle class for whom real estate holdings are their principal store of wealth) is too big to fail, and that the government has no real choice but to continue to promote the housing bubble. Certainly the repeated failures of authorities to rein in the market lend credence to this view.

But nothing, not even Chinese real estate, can keep inflating forever; sooner or later, the party will end. The question of what happens when the music stops is one of the most important variables in global politics.

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