Why China’s Golden Age of Homeownership Is Already Over

BY Ruby Hinchliffe

China’s housing market may be in the midst of a painful downturn – but for decades it has claimed to have trumped Britain, as well as many other western countries, on its rates of private homeownership.

The country’s central bank, the People’s Bank of China, claims 96pc of residents own a home and 20pc own more than one. This compares to 64pc in Britain – and the 4pc who own a second home.

The 96pc claim comes despite house prices in major cities having surged by over 90pc in the past six years according to government data.

In 1998 housing reforms akin to Margaret Thatcher’s Right to Buy gave renters new powers to buy their homes at reduced prices – but on a far greater scale. Until then, most homes were provided by employers.

A similar reform took place in Romania back in 1991, which is why it boasts the highest homeownership rate in Europe.

Both countries, previously traditional communist states, went from official rates of 0pc homeownership to over 90pc within years.

Duncan Wrigley, of research firm Pantheon Macroeconomics, said while the vast privatisation of state assets in China played a critical role in the creation of an urban middle class – the 96pc home ownership rate is “misleading” when you look at homeownership rates in China’s countryside.

Mr Wrigley said: “It’s based on people with urban hukou, that is, ‘household registration’, and preferential access to public services such as health and education.

“Around 230 million migrants from the countryside or other cities that live in cities aren’t counted. Few of these migrants will own urban homes.

“If they were counted, then China’s homeownership rate would probably be closer to 70pc.”

A skewed definition of homeownership

Chinese officials quantify homeownership by asking occupants in a home if they are a homeowner – not whether they own the home they occupy.

This matters, according to London School of Economics professor Christian Hilber, because many possess a home in the countryside where their original hukou is from.

In the country, farmers can build their own homes by applying to the village for consent when a boy is born. They are then only allowed to sell that home to other local villagers. In the poorest rural areas, the Chinese government offers citizens subsidies so they can build small brick houses and pay a nominal amount of rent.

In the large cities, residents remain priced out of homeownership. Huge developers have lined the streets with skyscrapers at an unsustainable rate.

The annual disposable income of urban households was 2.4 times that of rural families last year, according to China’s National Bureau of Statistics (NBS). The opportunity to earn higher wages is in part why so many migrate to the cities.

Christine Li, of estate agent Knight Frank, said in Chinese society marriage will only take place when the groom buys a house.

Mr Hilber agreed that owning a property as a young Chinese man makes you more “eligible” and “desirable” on the marriage market.

He added: “In order for them to purchase a property, not only parents but also grandparents typically support them to do this. And since there are so many one-child families due to the one-child policy, there are a lot of supporting adults per young man.

“This can in part explain why the price-to-income ratio is so incredibly high in China, yet despite this so many young people can still buy.”

Empty homes and mortgage boycotts

In China, average house prices soared from 2,885 yuan (£321) per square metre in 2005, to 6,626 yuan (£737) in 2020 – leading to a housing price-to-income ratio of 29, according to national data.

In England, the price-to-income ratio was 8.3 last year according to the National Office for Statistics, and 6.1 in Wales.

China’s housing market has only become more unaffordable since 2020. This has led to critical drops in demand – leaving a growing number of new and old apartments empty.

Last week, the country unveiled a plan to rescue its housing market – which included loosening its mortgage lending rules and asking local governments to buy unsold homes.

The picture is very different in China’s countryside, where housing is still affordable – in part, because land prices are so cheap and because housing is not as high quality as in the cities.

In England, the share of owner occupiers has not varied much since 1980, having increased from 57pc to 64pc and peaking at 71pc in 2003.

But what has continued to increase, and at a faster rate than homeownership, is the share of this group which owns outright versus with a mortgage.

Just 30pc of British households owned a house with a mortgage last year, down from 43pc in the mid-1990s.

Andrew Goodwin, of Oxford Economics, said this is down to a number of reasons. One is Britain’s ageing population, as more older people finish repaying their mortgage and own outright.

But it’s also a consequence of poor affordability, Mr Goodwin said, which is stopping younger people getting on the property ladder.

He added: “Practically every metric – income multiples, loan-to-value ratios, mortgage payments to income – shows that it is much harder for someone on the average income to afford to buy now, compared with the past.”

China has one of the fastest growing ageing populations in the world, according to the World Health Organisation. The population of people over 60 is projected to reach 28pc – 402 million people – by 2040.

But it has also historically boasted a high number of millennial homeowners. A 2017 HSBC study pitted the rate at 70pc, compared with 31pc in the UK.

More recently, however, affordability has taken its toll on China’s younger generations. So much so that some are now boycotting mortgage repayments.

In a note published last year, Oxford Economics called the mortgage boycotts – driven by deteriorating sentiment toward property – “a very serious threat to the financial position of the sector”.

China’s youth unemployment rate peaked last year at 21pc, growing by double this across rural regions, according to the NBS.

Job losses, as well as a growing number of developers failing to finish building flats they have pre-sold to young buyers, has contributed to the stand-off.

In January, workers also suffered their biggest drop in hiring salaries since 2016 – with starting wages of 10,420 yuan (£1,134) each month. In Britain, however, wages have grown around 6pc over the past year.

A turbulent economy, paired with a struggling housing market – which makes up a third of the country’s GDP – is expected to have a downward pressure on China’s rents.

Brokerage CBRE has predicted rents in China’s biggest cities will fall as much as 6pc this year.

In the UK, however, rents are continuing to rise, which is eating into home buyer affordability.

So, is it better to be a young, budding homebuyer in the UK or China? A few years ago, it might have been China. But recent market movements seem to have flipped the tables.

“Even the most bullish developers agree that China’s housing market golden age has passed,” said Mr Wrigley.

“House prices are still falling and when the recovery comes no one expects the same kind of capital appreciation as over the last couple of decades, given slowing growth and demographic headwinds.”

###

VIA：The Telegraph