housing bubbles in china

Topics: Real estate, Real estate pricing, Sustainability Pages: 10 (2074 words) Published: July 5, 2014
Housing Bubbles in Metropolises in China

Introduction
The boom of house market has emerged accompanying with the soaring development of Chinese economy over the last two decades. Although the prosperity of real estate sector makes contributions to the growth of national fiscal revenue and Gross Domestic Product, it also raises a serious problem --- housing bubbles, defined as the housing prices deviate too much from its fundamental value (Flood and Hodrick, 1900), especially in metropolitan areas in China such as Shanghai and Beijing (Hou, 2010). From the data collected by National Bureau of Statistics of China (2013), the increasing tendency of real estate prices continues in these cities. A series of impacts on economic and social sustainability have manifested on individuals as well as the nation. This report presents a study of these negative impacts, probable causes and potential solutions pertaining to the housing bubbles in China.

Impacts
Housing bubbles do not contribute to economic sustainability since they fail to reach the standard of guaranteeing both short and long-term economic gain (Western Australian Government, 2003). Specifically, a depression of domestic consumption and an unbalanced economic structure generated by real estate bubbles may dampen the national economic growth in the future. The exorbitant price pushes residents to be highly potential to apply for loans and to become mortgage slaves when purchasing real estate. Naturally, these applications tend to be prudent to spend spare money for other products in the following decades. According to statistics adopted by Deng and Chen (2008), Chinese urban residents’ final consumption rates has decreased from 61.3 % to 55.4 % from 2000 to 2004, while average that of most countries is above 70 %. When it becomes a consuming tendency of large proportions, a nationwide decrease of domestic consumption would appear and begin to form a vicious cycle: The insufficient consumption forces numerous factories to go bankrupt and great quantities of workers to be laid off. In turn, the downsizing issue further inhibits consumption desires of customers. In addition, driven by lucrative profits, not only individuals, but also entrepreneurs prefer to invest money in housing sector rather than other industries. If the housing bubbles burst, the unbalanced economic structure will enhance the risk of economy crisis since the nation lacks immeasurable amounts of loans as well as other economic entities to compensate the losses. Consequently, housing bubbles eventually halt national economy from growing healthily and rapidly.

The immoderate housing prices also exert detrimental influence on social sustainability owing to the ignorance of the agreement of intra and inter-generational equity (WAG, 2011). Excessive housing prices genuinely distort marriage and posterity concepts among the youngster. Owning a house is regarded as a marriage prerequisite as well as a luxury because of its unaffordable price in major cities. Most young males, except those who have rather affluent families, have no choices but to delay their marriage until they have sufficient savings. Furthermore, due to the upward cost of raising children (Wang, 2002) including the nest expenditure, it becomes more difficult to support large families. Therefore young couples would have to postpone having offspring. In 2003, Chinese population growth rate (0.07%) was the fourth lowest among fifteen powerful countries (Liu & Diamond, 2005). In the long run, the decrease of birth rate will aggravate the aging society situation and bring other ripple effects (Cao and Wang, 2009). In summary, the subsequent generation has to bear a heavier social burden which eventually leads to a stagnation of social development. Hence, the housing bubbles fail to provide equilibrium both within and between generations.

Causes
Under the circumstance of Chinese economic reform in 1998, the supply of housing in...

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