Defusing the Housing Time Bomb

‘The Chinese government has tried very hard for quite a while to try to moderate housing price increases.’

• ‘Why? Because in the government's mind high prices mean a generation of young ‘people who will find housing unaffordable.’
• ‘And that could be a time bomb that leads to social instability now and especially down the road.’

‘To diffuse the time bomb they have sometimes restricted supply, sometimes restricted demand, sometimes done a combination with them.’

• ‘And so far they have not been very successful.’

Urbanization Alone Not Causing Housing Prices to Rise

‘One popular explanation for rising housing prices in China in last few decades is urbanization.’

• ‘With many people moving out of the rural areas into China cities every year in the last few decades, shouldn't we expect to see rising housing prices in the urban areas?’

‘If this is correct, though, you should see a simultaneous increase in both rent and housing prices in urban areas.’

• ‘But the actual data show that housing prices in the last few decades have risen much faster than rent.’

‘And if this is correct, housing prices in cities with the greatest net inflow of immigrants should have risen faster than other cities.’

• ‘Again the data show that rising house prices are not limited to just a tier one cities, where most migrants have settled, but also across second tier, third tier cities, where fewer migrants have gone.’

‘It's not just the urban situation.’

• ‘In rural areas with a net outflow of people, you also see much faster increasing housing prices, not only related to local income, but related to slower increasing local rent as well.’

‘So what is happening?’

• ‘Demographics – specifically gender imbalance - is one of the powerful forces underlying the housing prices.’
• ‘Gender imbalance accounts for one-third of China’s housing price increases over the past couple of decades.’

Read the full exchange in ‘Q&A’.

‘Seven Brides for Six Brothers’

‘Why does gender imbalance have such an outsize impact on China’s housing prices?

• ‘Look to China’s mothers-in-law for part of the answer.’

‘A recently developed social norm is that the family of a groom is supposed to supply a house in rural areas or an apartment in cities for the young couple before the marriage.’

• ‘A survey of mothers with a daughter in eight major cities by China Economic Daily in March 2010 reported that 80% of the respondents would object to their daughter marrying a young man who can only rent rather than own a home.’
• ‘This prompts the headline that “it is fundamentally true that mothers-in-law (mothers of wives) are pushing up the housing prices.” ’

‘Now add gender imbalance to this.’

• ‘If you look at the dating and marriage market, let's say for 15- to 35-year-old cohort, the young man to young woman ratio is about 115 or 116 men per 100 women.’

‘So roughly one out of every nine young men cannot find a wife or girlfriend.

• ‘This means is a shortage of brides and thus many involuntary bachelors.’

‘Parents may ask themselves what they can do so that their son can avoid being involuntary bachelor.’

• ‘They know this is a competition.’
• ‘They want to make sure their son will be ranked in the dating and marriage market and will be ranked sufficiently ahead of other men.’
• ‘They know that one of the important sorting variables is wealth. They know there are no wealthy involuntary bachelors.’

‘They can raise their relative wealth by raising their savings rate.’

• ‘Working harder; getting a second job, a third job; looking for potentially higher risk, higher return jobs’ becoming an entrepreneur.’

Read the full exchange in ‘Q&A’.

‘But it's not just about putting more money in your bank account.’

• ‘It's about postponing your consumption, so that a greater share of income will not be consumed (which has an impact on China’s efforts to become a more consumption-led economy).’
• ‘And it about buying assets that hopefully will appreciate in values.’

‘Postponing consumption and invest adds additional demand for assets.’

• ‘One important class of assets for most households – and a necessary one for young men to be competitive in the marriage market - is housing,

‘Therefore higher housing prices can come from this demographic force.’

• ‘An unintended consequence of a family planning policy.’

Impact on Other Assets

‘How does this compare to other assets?’

• ‘All asset prices can be pushed up because of the gender imbalance, but it's harder to find evidence.’
• ‘If you look at the stocks, the stocks of a company located in a high sex ratio region can be held by people from anywhere in the country, so you don't really see differential change.’

‘Housing as a class is much more localized.’

• ‘Therefore, the economic force of the effect of gender imbalances in the marriage market show up more strongly and more clearly in this particular asset’s prices.’

‘But the logic of the story applies to many asset prices as well.’

When Will It End?

‘How long will the housing price issue caused by gender imbalance last?’

• ‘The relaxation of family planning policies began in 2015.’
• ‘Those policies are intended to reverse decline in birth rates, but it will also have impact on reducing the gender imbalance.’

Q: ‘We know there has been gender imbalance of China for a very long time. So why is it just having an impact on housing prices in recent decades?’

• ‘In a normal economy, say the US or Germany or Japan, you expect something on the order of a 106 to 107 boys being born per 100 girls.’

‘Chinese numbers, before the family planning policy [the ‘One Child Policy’] of the 1980s was very close to that.’

• ‘After the family planning started to become progressively out of balance 110, 115, 120 boys per 100 girls.’
• ‘This has started to improve, but if you look at the dating and marriage market - let's say between the ages of 15 to 35, the young man to young woman ratio is still about 115 or 116, men per 100 women.’

‘In sum this imbalance in dating/marriage market cohort did not exist before 1990s.’

• ‘It got progressively worse from the 1990s and is now beginning to improve a bit.

Read the full exchange in ‘Q&A’.

‘So over the medium term eventually result in moderation of housing price increases.’

• ‘Since no Chinese parents know how to produce a 20-year-old at birth this particular demographic force is going to last at least for another decade or more.’
• (‘This also means that even with the government’s relaxing its family planning policy, the working age cohort effect will only show up two decades later.)’

‘When housing prices moderate, the government probably will not attribute that to my story - they will think about something they banned have worked.’

• ‘Nonetheless this suggests that among the many things we want to examine of what causes not just average housing price increase, but also differential housing prices in different parts of the country, we want to pay attention to demographic forces.’