Midway into 2017, Chinese authorities are still looking for good options to restrain the booming housing market—and they’re coming up empty. With every restriction either engendering local opposition or proving ineffectual, the bubble continues to expand, explains the Wall Street Journal:
With each new policy intended to restrict home purchases, buyers are piling in. Stressed about the prospect of being left behind, many are borrowing heavily, believing prices will continue to rise despite the restrictions and will soar if the government has to lift restrictions to spur economic growth.
Another article of faith is that the Communist Party won’t allow housing prices to collapse. “The government will spare no effort to make sure there are no big swings in the property market,” says Ni Pengfei, a housing expert at the Chinese Academy of Social Sciences, a government think tank.
The desperate home buyers are exposing Beijing’s inability to control a housing market it has been relying on for economic growth. A decade ago, the real-estate sector, including construction and home furnishings, accounted for about 10% of China’s gross domestic product […] It now accounts for almost one-third.
When it comes to reining in the housing bubble, China’s authorities are damned if they do and damned if they don’t. They can’t stop the bubble without wrecking the economy and infuriating the public; they can’t let it keep building without it ultimately wrecking the economy and infuriating the public.
The cost of inaction keeps rising, but so too does the cost of aggressively confronting the bubble. When authorities imposed property controls in Shanghai this year, scores of angry middle-class home-owners took to the streets in protest, leaving the hapless authorities to deflect responsibility while walking back the new restrictions. And it’s not just homeowners who stand to lose from curbs on the market. China’s local governments rely heavily on land sales to fill their coffers; rising property prices suit them because it makes the undeveloped land they hold ever more valuable. In other words, political incentives and short-term economic growth demand the maintenance of a status quo that is clearly unsustainable in the long run.
As ever, it is a fool’s errand to confidently predict when the property bubble will burst. But China’s current slate of regulatory half-measures does not seem to be deflating it—and if it pops, the consequences could be disastrous.