China’s ghost cities make it extremely difficult for young Chinese to buy a home and form a family. And that’s bad news for the future of China, and its financial markets.
China has two types of cities — conventional cities crowded with apartment buildings occupied by people; and unconventional cities, crowded with buildings with vacant apartments.
That’s why they are called “ghost cities.” They are usually owned by land developers and speculators who count on selling them one day at sky prices.
The trouble is that keeping a large supply of new apartments off the market creates a huge housing shortage. And that pushes the prices for “second-hand” houses ever higher. Shanghai’s Second-Hand House Price Index has soared from under 1000 in 2003 to around 4000 in 2017.
That’s bad news for everyone who is in the market looking for a home to live in, and particularly, for young people who to buy a home and form a family.
“The despair is perhaps particularly acute for the growing legions of young men who can’t find a mate because they can’t afford a house: 70 percent of single Chinese women say that the first thing they look for in a man is the deed to an apartment,” observes Ruchir Sharma in the Breakout Nations. “Meanwhile cash-rich Chinese are buying multiple homes.”
As a result, Chinese people are putting off marriage to a latter age. The average age of first-time marriage in the eastern province was 34.2 years in 2017 – 34.3 years for women and 34.1 for men, according to the latest statistics released by Jiangsu Province’s Civil Affairs Bureau. Five years ago, the average age was 29.6 years. And in 2015 it was 32.4.
That could explain why China’s marriage rates have plummeted close to 30% in the last five years.
To be fair, the government has been trying to address the issue by building public housing, but this policy ends up creating more ghost cities. “In response the government is employing land-use laws to force developers to build social housing,” says Sharma. “This leads to a final mismatch. Few young Chinese aspire to live in public tract homes, so some of these developments may become new ghost cities.”
Meanwhile, the big drop in marriage rates is expected to worsen China’s demographic problem. It will lead to lower birth rates, a shrinking labor force and unfavorable “dependency rates” — too few working people will have to support too many retired people.
That’s bad news for the future of the Chinese economy and financial markets.
Perhaps China should learn a lesson or two from Japan — which has already encountered similar housing and demographic trends — and gets its housing policy right: by placing young families into homes rather than making speculators rich.
By Panos Mourdoukoutas