PropertyProf Blog

Editor: Stephen Clowney
Univ. of Arkansas, Fayetteville

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Tuesday, December 6, 2011

Can China Manage Its Bubble Better?

Can China manage it's real estate bubble better than the United States managed its during the mid-aughts (2002-2007)?  Well, I suppose it can't do much worse, but regulators in China are finding the process of dampening the rise in housing prices while maintaining economic growth as difficult as ever. 

Speculation fueled by rising housing prices lead to over-building, and now the inexorable law of supply and demand is taking its toll.  That is particulalrly true in places like Kangbashi, a city built for a about a million residents that sits mostly empty.  To curb speculation, China has raised the cost of borrowing, but that adds to the downward pressure on housing prices that were already under pressure from over-supply.  That, in turn, threatens both economic growth and, potentially, the government itself:

"[D]eflating the property bubble is a tricky gamble for the communist leadership given its reliance on rising living standards for its claim to power.  Homeowners whose life savings are in property are seeing the gains they once took for granted evaporate as developers are offering steep discounts on new apartments."

In the United States, we certainly failed to find a decent balance between deflating a speculative housing bubble and maintaining economic growth.  The result has been years of economic pain for the vast majority of the people, and untold riches for a few.  Can China avoid the same fate?

Mark A. Edwards

http://lawprofessors.typepad.com/property/2011/12/can-china-manage-its-bubble-better-.html

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