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Comment by ksec | Hacker News Reader

To put things into context.

1. These are Urban Homes.

2. There are roughly 20M people jumping to new cities and Urban areas every year. For years China has keep a roughly two years buffer zone, I think the rate of new housing is the same and rate of people going into Urban has declined, so a slight increase in terms of buffer ( closer to three years now ).

3. Most of the "Ghost Cities" do get fill up quickly, once the policy are in place for their turn.

These so called Home vacancies and ticking time bomb has been cycling through media every year. And it isn't happening ( yet ). There are 500M+ still living in rural areas ( Yes I know the number is a little hard to believe ) At least another 300M to go from rural areas to Urban, with 200M likely not going to get their turn as they age.

So from that perspective ( As much as I hate to admit it ) China really is still a developing country.

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Articles about ghost cities are a fascinating read - sometimes exploring un-intuitive facts, like having 50m empty homes in China, yields a surprising discovery of the underlying systems.

In this case, I think the system perfectly justifies having 50m homes empty. If you look at it another way, if San Francisco (arguably another booming localized economy) had the same initiative to build a 20% buffer for housing, it would be seen as a progressive, citizen minded effort to create affordable housing and a huge benefit to the community.

As China, I'd much rather face the problem of building empty homes (which is not really a problem?) than face the population revolting from huge spikes in cost of living due to not enough urban housing. SF is full of rich enough people to ignore the struggles of the working class - China probably isn't.

edit: I also don't think the rise in 2nd or 3rd home purchases is an issue, it's more of a symptom of the growing divide between rich and poor, especially in China.

SF residents are nowhere near rich enough to afford the struggles. Even people in the top 2-5% struggle desperately to afford housing, renting out every bedroom in the house just to afford to stay there.

SF is not going to implode any time soon though, which is why I say it can 'afford' it. China is a different story.

i'd say a decade is pretty "soon" for a city.

SF residents are among the richest in the world.

SF housing is made extremely expensive by multi decade long anti housing policies, but that's completely artificial.

If the Chinese ran housing in SF, there would be housing for 5 million people there.

In fact, the earliest anti-housing policies were designed to harm Chinese residents of the city: https://www.collectorsweekly.com/articles/demolishing-the-ca...

Rich is relative, depending on the cost of living. Right?

If you make minimum wage in the US and work 40 hours a week, you’re in the global top 10%.

  If the Chinese ran housing in SF, there would be housing for 5 million people there

...and enough water for about 900,000 of them.

Pretty sure there would be water.

Pretty sure not everyone would like how.

Yes, they'd have demolished all of the old housing and it would look very different.

yes, but they aren't, and that's why we're in this mess. not enough housing driving up the cost to the point where most can't afford it anymore or barely afford it.

That is actually quite a large difference. China deliberately build ghost towns and pull in lots of people into urbanisation. If they had build a 20% buffer zone in Shanghai, I don't know how many will try and rush to that places and causes all sort of problem.

The SF problem is a lot like HK. There are far too many parties invested in property, therefore it is their interest to keep property building low and push the price as far up as possible. Government being extremely slow to react and by the time they do, those parties will try to delay it for so they have time to offload their asset.

The only way to go about it, is to build Satellite cities and try to move people out of it. Which in US is easier said than done.

> I'd much rather face the problem of building empty homes (which is not really a problem?)

Not in and of itself, but if you look at historical parallels, like the development of Brasilia, the consequences were devastating: over a decade of hyperinflation and a series of failed currencies until one stuck.

It seems like China is building hundreds of Brasilias all at once.

Maybe Beijing has figured this out, and this will lift more people out of poverty than ever in history? Or maybe this isn't different and the reckoning on the back end will be unimaginable?

Never in history has local economic policy affected so many, and it happens to be in a setting where you aren't really allowed to debate economic or government policies.

Maybe it will all work out but it's a scary ride.

I don't know where you got your statistics most are false, half complete or misleading. Even in place like Shanghai, its been around 15 years they built Lingang City is still empty, now waiting for Tesla factory to populate, govt spend over 38 billion dollars to build it, people bought apartment blocks seating empty or acting as construction workers living quarters.

Go to a mall right next to Huangpu river near Lupu bridge mostly empty for last 10 years built by Greenland (it's the main downtown area). As others pointed out most of these homes and commercial ventures are waiting for price rises to sale and are seating empty. This narrative of urbanization is pretty old, now it's impact is very little in city like Shanghai.

At present across China there is price but no buyers. People are holding on to real estate until they get atleast bit more than what they bought. On the other hand people's saving has already been consumed by SOE and govt spending. So the only way to prop up economy is to print money like USA. As long as other countries do not want RMB to depreciate, they can print money and prop up the economy.

>I don't know where you got your statistics most are false, half complete or misleading.

Official Stats? ( But as you know Official Stats could be wrong too ) I never said the City they built out NOW have to be filled within 2 years. There are some that strategically don't work and are left there like ruins. Some are waiting for their turns, some may never come. And they will likely knock those down and rebuilt again. And when it comes to urbanisation, why would anyone wants to pull people from rural into First Class City like Shanghai? There are lots of places in Midland and Western ( The so called Great Western China Development )

I am not talking of 2 years, Lingang is built for over 12-15 years and it was an idea of Shanghai government to move Pudong Govt offices to Lingang, which did not happen as no one wants to go there and it is still sparsely populated area of Shanghai with lots of empty apartments (I think over 50-60% empty) obviously bought as investment properties.

Can you give me the address? I’ve seen plenty of new malls that are half empty but they’ve all filled up so far. In the six years I’ve lived in Shanghai the “cool” areas where foreigners live have expanded markedly. Then again I’d never even heard of the Lupu Bridge until I looked it just now. The Fabric Market is near there, unless they’re just refusing to let lie class tenants rent there any mall should be full like the old fake market at Qipu lu.

It's not one mall but series of malls and offices between nanpu and lupu bridge near the Puxi side expo areas (mostly without much foot traffic or shops). They are there for over 8 years.

You probably can take a bicycle and ride along the Huangpu river from Nanpu bridge towards Lupu bridge. It's a beautiful bicycle path and you can see the empty malls and offices.

2. There are empty homes in 10 year old complexes in Beijing and Shanghai.

3. Many of the ghost districts never fill up before they are torn down as eye sores. Kangbashi will only fill up if coal makes a big come back, which is highly unlikely. Tianjin financial district is mostly a bust so far, but a derelict building or two for a decade is not abnormal.

The problem is really simple: China lacks a property tax, so housing is seen as a speculative investment rather than just a place to live in. And China is not wanting for speculators.

Why is it seen as a better speculative investment than other opportunities. After all, someone is left holding the bag when the investment is found to be unused -- which is a cost just as much as a tax would be. What other considerations are outweighing that cost?

Because property values have skyrocketed in big cities. Of course, that's no guarantee that they'll continue to rise, but, this history looms large in media and culture. Everybody knows somebody who became rich this way: "My classmate's parents bought him a condo in Beijing in 2008 and now it's worth millions!"

There is also the continued migration from rural to urban, ensuring that demand will continue to increase for a while yet.

China controls how capital can leave the country. There is a lot of money just sloshing around within China hungry for investment. And the financial sector is relatively underdeveloped with a volatile stock market.

As a result, Chinese money loves chasing bubbles in search of returns, like P2P lending and crypto.

http://scholars-stage.blogspot.com/2014/08/passages-i-highli...

The entire Chinese economy is as rigged as the government can make it. The stock and bond markets are fake, the state owned enterprises are run as fiefs of the Party-State, not for profit, all the major banks included. Nothing is trustworthy. Combine that with a property market that’s been going up for decades and a ruling class that would not be happy if the middle class that started rioting if their savings in property went up in smoke and you have a fake property market too.

One thing I found when looking into investing in Asia is that p/e ratios are... extreme.

Purchase to rent ratios are also extreme in china. Good investing is tough.

Houses are seen as speculative investments for the vast majority of US home owners also.

Not really in the same way. High property taxes mean you usually can’t sit on a property and wait to flip it, it has to be put to productive use because deprecation (through taxes) happens right away. No one can really afford to buy an apartment building, decide that renting the units isn’t worth it and just sit on the empty unrenovated apartments until buyers come along.

In China, you can buy property and just sit on it. Many apartments are never even renovated because market level rents are too low to justify that. Yes, they apartment costs 7m yuan to buy, but only rents out for 10k yuan/month that doesn’t even cover interest. Keep in mind that renovation actually decreases an apartment’s value because new owners have to unrenovate it first.

US property tax of 1% or rarely 2% is not much of.a speed bump when you are chasing 10+% gains.

10% gain won’t even cover sales commissions. If you can ignore property taxes and do nothing with your property, you are looking to make 50% at least in a few year period.

I thought it was clear from context that I meant annualized.

>The problem is really simple: China lacks a property tax, so housing is seen as a speculative investment rather than just a place to live in.

The government should read Henry George. Well, everyone should read Henry George.

Very important point. A common way of measuring China's surplus housing stock is by "months of sales". Housing inventory actually peaked back in 2015 at nearly 28 months of sales. It's now back at late 2013 levels of a little over 23 months of sales. Nothing to be alarmed about, even if it rises a little.

That omits the fact that big amount of the "buffer" was unsold for way way more than a few years, and the most liquid part of the stock are the bespoken 1000sq metre luxury mansion apartments.

There are a few more factors that are unique to China's situation:

- New construction condos are a better investment proposition than in the West because (1) there's no property tax, and (2) other types of investments are less reliable (e.g., stock market is rigged) - There's a cultural aversion to 'used' things, which explains why an investor might prefer to let a condo sit empty instead of rent it out. - Because they're seen as an investment, some new construction is actually built with the intention of selling directly to investors.

Letting an empty condo sit and later, much later sell is not new.

The central authorities control the central bank, the banks, and perhaps importantly: the press. And of course policy/taxation.

So they can stop a lot of rampant speculation through a variety of measures, meaning hopefully, they can kill any bubble-like blowups.

As you say, there's a lot of poor folks and a lot of empty homes, maybe that does mean a haircut for home owners, but it might possibly be done in a way that doesn't cause any bursting bubbles.

So long as there is something to underpin reality (like ex-poor people wanting homes) they can make a soft landing for all of this.

The more existential concern is: 'what then'?

The path has never been so uncertain.

I'd say the danger for China is not being unable to handle a consumer bubble. As you've pointed out, they have a lot of tools.

It's their not recognizing they're creating a government supply bubble.

The real weakness of demand economies historically hasn't been their difficulty producing basic things (that they feel are necessary), but knowing when to stop producing things. Absent free market signals, there's not a lot to tell you when to put the brakes on.

That's a great point, that said, I'll bet they're aware of the problem you mention :)

But macro-macro I see China going the very same thing Germany/UK/France, then Japan, then Korea did after WW2: they all rebounded to a certain degree and did so with nationalist fervour where applicable, and then kind of softened as they stopped having as many kids... and the kids lost the hyper passion their parents did.

China is almost there with a lot of this, and soon it won't matter what they do, there's a limit to the demand for their stuff, they can only build so many homes, and they're having fewer babies, and those babies don't want to be slaves.

China is 1980's Japan, just a lot bigger.

You mean "command economy"?

I read a different article (also on HN) that people will buy real estate without actually living in it. It's probably a smart investment if you combine it with your comment - if it's planned for a city to be "next in line" then the price of those apartments will rise after a couple years of being empty.

Well some people are going to always stay in rural areas right? China will still have some agriculture.

Yes and true. But I mean 500M in rural is 30% more than the total US population. With modern technology there are very little need for hundreds of millions people in agriculture. There are billions of funding to help farmers modernise their tools, drones and machines doing the work. ( Although that has not been working so well, turns out Machine Learning, Drones, or other tech can only do as much when your soil is pretty much in a shit state )

America is also a developing country. It's not like anywhere is ever finished developing.

Let's replace "developing" with "in the progress of rapid urbanization".

According to wikipedia (https://en.wikipedia.org/wiki/Urbanization#/media/File:2015_...), US is already highly urbanized but China's not.

As long as we agree that high rate of urbanization is the future, China basically has more room to grow in this aspect.

China's government might not want to continue with their high urbanization policy in the future. Perhaps they want to keep, say, 20% of the population in a poorer rural environment so their country won't have to bring in migrants to do the work migrants traditionally do in richer countries and territories like the U.S., Hong Kong, and the UAE.

"developing country" is a term used in economic discourse to mean something rather specific -> https://en.wikipedia.org/wiki/Developing_country. It has pretty specific criteria what qualifies, and America (the richest country in the world) does not.

Yes. And I think it's dumb. The article linked to states it in alternative words "low and middle income country LMIC". I think that's an order of magnitude better.

I know I'm nitpicking and being an asshole about this point, but I think words matter. How we talk about things feeds in to how we conceptualize things and our mental models are like low quality, compressed, cartoon versions of reality and getting them more accurate at a fundamental level goes a long way towards improving the end results of our cognition.

It also used to be called First World, Second World, Third World. It's not anymore. Discourse changes because people stop agreeing on terms being useful, accurate, or good.

I liked Hans Rosling's level 1,2,3,4 stratified model a little better.

Communication is nuanced, not my fault that words have a commonly accepted definition even if it has unexpected connotations attached.

Understand the frustration though.

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