Why Are Houses So Expensive in China?

It is an understatement to say that real estates in China's major cities are expensive. Shanghai is now arguably the most expensive city in the world, with its cost of housing 36.1 times higher than a resident's average annual income, by Bloomberg. This trend isn't only in Shanghai, however. In Shenzhen, the cost of an apartment is 43.5 times a resident's average annual income, per Bloomberg. In fact, Shenzhen actually has China's highest real estate prices and lowest home-ownership rates. To go along with Shanghai and Shenzhen, Guangzhou also saw a 16 percent home price increase this year. When looking at the big picture throughout the years, about 4 to 5 Chinese cities consistently appear on the list for the top ten most expensive property markets globally. So what led to these outrageous prices in the China real estate market?

The city of Shanghai.

Image Source: Wikipedia

Investment

An important reason behind China's expensive housing prices is that real estate in China is viewed as a speculative asset first and a place to live second. Despite having poor building standards, houses in China are almost guaranteed to be worth more tomorrow than it is today. As a result, more and more Chinese investors are putting their money into real estate, driving up the price of houses in China. In some ways, it is similar to some of the tech companies in the United States. Although having terrible underlying fundamentals, these companies have seen a long period of sustained price growth based on expectations of future growth, which further fuels price growth. Realizing this issue, the Chinese government attempted to cool down the demand for these houses by implementing policies to limit the number of houses a single household can own. However, many investors in China were able to find ways to get around this issue. Some even went out of their ways by getting divorced on paper so that one household becomes two separated households, allowing them to double their real estate holdings without penalties. (Economic Explained)  

Buildings in Beijing, China.

Image Source: 人民网

Limited Investment Vehicles

The lack of investment vehicles in China also plays an important role in China's expensive housing prices. Many Chinese people hesitate to invest in Chinese companies because historically, they have not been great investments, especially when compared to the economy's overall growth. Along with this immaturity of China's stock and bond markets, the low returns on bank deposits also drive many Chinese into investing in real estate. So, what this means is that if you want to put your money to work in China, it almost has to be in real estate. As a result, with a large amount of investment allocated in housing, China's housing prices are becoming more expensive than ever. 

A graph of Chinese stock market.

Image Source: ChinaFotoPress / Getty Images

High Population Density

This might be very obvious, but China's high population density is definitely a factor that cannot be ignored. As of August 31, 2021, China remains the country with the largest population in the world, with a 1.4 billion population. The high population density and inflow of migrant workers largely affect and increase the demand for property in China. But with only limited land resources available, developers and home purchasers have to compete for these scarce resources, which put a large amount of upward pressure on Chinese cities' land values and home prices, ultimately driving land and home prices to the moon. 

People crowded a pedestrian street during a Labor Day Holiday in Shanghai on May 1.

Image Source: CNN Business

Societal Pressure

The one-child policy in China has caused a significant population imbalance, with men outnumbering women by around 35 million at the end of 2020. This excessive deluge of suitors led to fierce competition in the mainland marriage market, where many found it almost impossible to get married without owning a house. According to a Sharpen Research Institute and Guangzhou Youth Weekly survey in 2015, over 60% of women in China's major cities believe a house is necessary before tying the knot. It has gotten to the point where owning a home is almost a prerequisite for marriage, which continues to fuel the already heavy demand for real estate in China. (Juwai)

"Having a face" is essential in the eyes of the Chinese. The term "having a face" doesn't refer to someone's appearance and looks but instead a person's social status and reputation. So, by just owning a house in China, a person's social status can be automatically elevated in China because those owning a property are deemed more successful in the eyes of others. This unique "Face Culture" also serves to strengthen the obsession with houses in China. 

Many Chinese are facing huge societal pressures

Photo by Chen Youzi

Consequences

Recently, driven by the expensive housing prices in China and societal pressures from other aspects, a new phenomenon known as "lying flat" is sweeping the nation, mainly among the younger Chinese generations. It is a form of peaceful protest where most young Chinese refuse to work in high-intensity roles or to not work at all and just lay flat. It is a result of young Chinese generations being so beaten up by the societal pressures and ceaseless cycles of competition in the Chinese society, or the so-called "involution," that they decided to lower their goals, reduce their desires, and just relax. The Chinese government is especially concerned with this situation since China heavily relies on hardworking cheap labor to support its economy. Without its workforce, China's domestic market would likely collapse very quickly. "The nation's high-quality development is an endurance race," said Lyu Guoquan, a member of the National Committee of the Chinese People's Political Consultative Conference. "Valuing people and protecting their health is the right way to generate fortunes."