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Why China's housing policies have failed

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  • Tianlei Huang

    (Peterson Institute for International Economics)

Abstract

This working paper reviews the current housing crisis in China and explores the roles of supply-demand imbalances and local governments in the real estate sector. To prevent the housing downturn from further dragging down economic growth, Beijing suspended the financing restrictions on developers imposed in August 2020. These restrictions, known as the "three red lines" that limited new borrowing by developers, led Chinese property developers to default on a record number of debt obligations and triggered the most serious housing slump China has seen since 1998. The property sector saw its value added decline by more than 5 percent in 2022, even as the overall economy grew at 3 percent. But the current dynamics in the housing market reflect a repeated pattern: Loosening financing restrictions on developers and using housing as a macroeconomic stabilization tool risk reinforcing the boom-bust housing cycle. China's real estate sector is a systemic problem. Without serious reforms to address concerns such as supply-demand imbalances and local governments' deep connections with real estate, housing slumps like the one in 2022 may recur.

Suggested Citation

  • Tianlei Huang, 2023. "Why China's housing policies have failed," Working Paper Series WP23-5, Peterson Institute for International Economics.
    • Handle: RePEc:iie:wpaper:wp23-5
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    More about this item

    Keywords

    China; Real Estate; Land Policy; Local Governments; Property Tax;
    All these keywords.

    JEL classification:

    • H27 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other Sources of Revenue
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • N25 - Economic History - - Financial Markets and Institutions - - - Asia including Middle East
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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