Will China’s Housing Crisis Ever End?

Added: 2026-05-23

[00:00:00]A couple of years ago, there was a lot of talk about China's property crisis and the woes of big developers like Everrand. Media interest eventually died down, presumably because the sort of acute crisis that many people forecast never materialized. But China's property market never actually recovered and Chinese property prices have quietly continued to decline a pace. So, in this video, we're going to take another look at China's property crisis and its glaring parallels with Japan's prolonged property slump in the '90s.

[00:00:37]What comes next after overthrowing your government? That was the dilemma facing Gen Zed protesters from Bangladesh to Nepal to Madagascar following their revolutions. We explore the challenges they faced turning protest into power in the latest issue of our magazine, Too Long. That's just some of 80 pages in the magazine because there's more in Too Long than you'd expect. Purchase your copy by clicking the link in the description. So, let's start with a quick recap of how China's property crisis actually kicked off. In short, the root cause of China's poverty crisis was the utterly unprecedented wave of urbanization triggered by Deng Xiaoping's liberalizing economic reforms in the late 1970s and early 80s. These reforms generated rapid economic growth in urban areas, and hundreds of millions of Chinese people moved to the cities in search of jobs and prosperity. This urbanization was so rapid it's hard to really fathom. The percentage of Chinese people living in cities went from about 20% in 1980 to nearly 70% today with about 20 million Chinese people moving every year, which means that a new urban area the size of London has to be created every 6 months. This rapid urbanization created a huge demand for new housing. Developers built as fast as they could, but because the rate of urbanization was so ridiculously rapid, supply could never match demand. and house prices duly started rising. In the 25 years between 1980 and 2005, the median house price quintupled with even steeper increases in China's big cities.

[00:02:14]After years of rising prices, everyone basically assumed that prices would keep going up forever. And both buyers and developers took out increasingly large amounts of debt to get in on the action.

[00:02:25]Developers borrowed tons of money to build more and more houses, and buyers took out bigger and bigger mortgages to get on the property ladder.

[00:02:32]Unsurprisingly, this created a bubble with property prices in large Chinese cities reaching 40 times the median salary, the highest in the world.

[00:02:40]Property accounted for an estimated 75% of all Chinese household wealth. The comparable figure for the UK is about 35% and 20 to 30% of all economic activity. It also became very apparent that this bubble was unsustainable given China's declining population growth and urbanization rate. So, in an attempt to get ahead of the crisis, in August 2020, the CCP introduced the so-called three red lines, which essentially limited the amount of debt Chinese developers could take on. As you might remember, this caused some real problems for certain overleveraged developers, including most notably Everrand, who suddenly had to start paying down their debts. in signaling that they wouldn't tolerate ever rising prices. The CCP also undercut confidence in the property market, prompting a fall in house prices. Now, interest in this story eventually died down once it basically became apparent that neither the Chinese property market nor the wider Chinese economy were about to quote unquote collapse as much of YouTube predicted they would. But even if an acute headlineworthy crisis has been avoided, China's property crisis isn't over. In fact, according to a recent paper by Kenneth Rogoff and Yuan Chenyang at the Brookings Institute, Chinese property prices have continued to decline at a pretty consistent rate in the years since the Ever Grand Saga and have now been on the decline for the best part of 4 years with even longer declines in the worst affected cities. This is pretty remarkable. In any Western country, a multi-year housing slump would be considered a full-blown economic emergency. As China's slump drags on, parallels with the Japanese property market crisis in the 1990s have become harder to ignore. For context, after a massive boom in the 80s, in the decade between 1990 and 2000, Japan's property market imploded with residential prices falling by 50% and commercial prices by roughly 85%.

[00:04:35]Interestingly, and somewhat worryingly from the CCP's perspective, if you compare China's property slump so far with the beginnings of Japan's property slump, they look pretty similar.

[00:04:45]According to that Brookings paper we mentioned a moment ago, in the first four years of their respective crises, Chinese and Japanese residential property prices both fell by about 20%.

[00:04:55]Relative to their precrisis peak. The big difference between China and Japan so far, however, is that in Japan, the property crisis brought down the rest of the economy. Japan's main stock index, the NIK225, fell by about 75%. And Japanese growth rates fell from about 5% in the 80s to more like 1% in the '90s.

[00:05:15]The consensus today is that this is because Japan experienced what's known as a balance sheet recession. In other words, Japanese households and companies had taken out too much debt when property and asset prices were rising.

[00:05:27]So, when asset prices fell, these households and companies reacted by focusing on paying down their debts. In other words, repairing their balance sheets. While this might make sense on an individual level, for example, if the price of your house goes down steeply, it makes sense to focus on paying off your mortgage to reduce your risk of bankruptcy. If everyone in the economy starts doing this at the same time, then the economy stagnates. Now, at first glance, you might have expected a similar thing to happen to China. After all, like Japan in the 1990s, much of China's household wealth is tied up in property, which means Chinese households and consumers have been hit hard by the ongoing property slump. And yet, this hasn't happened. Unlike 1990s Japan, China has continued to post impressive growth figures with GDP consistently coming in at around 5%.

[00:06:15]Chinese equities have also fared surprisingly well after a decline between 2021 and 2024. The Shanghai Composite, China's main stock market, is currently trading at an all-time high.

[00:06:27]So, how has China avoided a Japan style balance sheet recession? Well, broadly speaking, we've seen two main reasons.

[00:06:34]The first is that while the property crisis has damaged consumer confidence inside China, the Chinese economy has been able to offset this by leaning ever more on external demand. In other words, by exporting more. This is why in the years since the property crisis, China's exports have continued to increase while its imports have flatlined, leading to ever larger trade surpluses. The second reason is that China was able to respond to the property slowdown by essentially redirecting money from the property sector straight into manufacturing. This plausibly reflects the fact that the Chinese state retains significant control over China's banking system and the CCP have been essentially directing Chinese banks to invest in manufacturing as part of Xi Jinping's drive to develop quote new productive forces. In Japan, on the other hand, the property slump led to a wider decline in confidence and without direction and guarantees from the state, Japanese banks were unwilling to restart lending and Japanese companies were uncomfortable taking on new debt. This has worked well. so far, but has left the Chinese economy undeniably reliant on exports and thus more vulnerable to the rising tide of protectionism we're seeing the world over. Now, you're probably looking to learn more about this story and keep up with how it progresses. And the first place you're going to start is online, but in today's world, it feels like 99% of websites demand your email address just to simply visit the page. So, you type in your email to access the site quicker, but unknowingly, you've now put your online safety at risk. Your information can now be sold online, and your email inbox is suddenly cluttered with a bunch of spam you never asked for. Thankfully, we have a solution for you. And that solution is Proton Mail.

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