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America’s Housing Crisis Is Generational. China’s would be familiar.

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Two types of crisis can be seen when we compare the state of the housing markets in the two largest economies of the world.
The US housing market is priced out of reach for millennials.
In China, it won’t be a generation that bears the brunt of a crisis — instead, a housing market fallout would create intergenerational, familial crises.

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It is not a great time for millennials to try to buy a house.

Millennials should be in their prime years of homebuying right now. But instead, they are priced out of urban markets, and face the possibility of renting forever.

“Due to the skyrocketing housing prices in urban places, millennials generally cannot afford to purchase property, which is becoming a global phenomenon,” Chunling Li wrote in an October 2020 paper entitled “Children of Reform and Opening-up: China’s new generation and new age of development.” Published in the Journal of Chinese Sociology.

All housing markets are experiencing some form of this crisis. But comparing the current state in the two largest economies’ housing markets reveals two different types of crisis. The US housing crisis is primarily borne by one generation. However, China’s potential housing crises will affect multiple generations within the same family. And as China contends with the potential default of Evergrande — one of the country’s largest property developers — a housing crisis looms ever closer on the horizon.

America’s housing crisis: One generation bears the brunt

The US is seeing millennials in financial distress. This is more evident than ever in the housing market. They are facing their second housing crisis in 12 year.

According to Apartment List’s 2021 Homeownership Report, 47.9% are now homeowners in the United States. Although this is an improvement on three years ago, it still falls behind other generations. Only 42% of millennials owned their homes at age 30, while 48% of Gen Xers and 51% were homeowners at the exact same age.

This lag can be attributed in large part to rising housing costs. The US’s rising home costs have resulted in millennials paying 39% more for their first home in 2008 than their baby boomer peers 40 years before.

But they’re also getting screwed by the availability of homes — whether or not they can actually make a purchase. Hillary Hoffower from Insider reported earlier this year that the pandemic, undersupply of houses, and a lack of lumber created a perfect storm to attract potential homebuyers to the US. Redfin’s chief economic officer, Daryl Fairweather, stated to Hoffower there are not enough homes for the largest generation in America, the millennials.

All of this has led to a generation that is less likely to own homes than their predecessors; they pay more for homes if they are able to purchase them; and they struggle to accumulate wealth as they have not been able build equity through homeownership.

Minneapolis home.

Bruce Bisping/Star Tribune

China’s housing crisis: Everyone — and their family — is implicated

China has high homeownership rates.

According to a January research paper by the National Center for Biotechnology Information on homeownership in China, more than 90% of households are homeowners. The US, however, has a lower homeownership rate at 65%.

It doesn’t end with one home. More than 20% of Chinese homeowners own multiple homes.

However, the down payment for your first property in China is very high at 30-40% according to Dr. Xin, a senior lecturer in Chinese business at King’s College London. The down payment for additional properties that are purchased as investments is higher at 50-60%.

In her October 2020 paper, Li, the sociologist, examined how China’s “new generation” — those born in the 1980s and 1990s — grew up in an era of reform. Li’s research included how China’s millennials study, spend, and save — and how they buy homes. In order to buy a house, most millennials need to turn to personal lenders, as housing prices have soared over recent years. 

Li wrote, “In China most of the millennial generations have to seek financial assistance from their parents in order to purchase a home (or apartment) to start a child.”

Sun explained further how government policies have led to this pattern of intrafamilial borrowing: “Increasingly the government has adopted more restrictive limits to market loan, which limit how much money you are allowed to borrow from banks to purchase properties, especially second and third homes.” According to Sun, this has led to people borrowing large amounts from their family members in order to pay down their down payments.

Sun said that it is not a generation that would be wiped-out in a worst-case Chinese housing-market scenario: It’s the families.

Sun said that Chinese families aren’t as distinct as Western ones. This means that in order to buy property in China, any generation will likely need to collect money from all members of the family. “For example, younger generations who want to buy large-scale properties in big cities will need savings from their parents and grandparents.

That means that if there were an issue in the housing market — say, a massive real-estate developer with $300 billion in debt, missed bond repayment deadlines, and strong signs of contagion risk — what would be triggered wouldn’t be a wave of bank defaults. It would lead to a flood of personal bankruptcies, spreading from individuals back into their families.

This issue is particularly important because real estate makes up a large portion of China’s economy as well as a significant part of households’ wealth. The sector accounts for 29% of China’s GDP (housing accounts for about 15-18% of America’s GDP). And according to Moody’s estimates, 70-80% of Chinese household assets are tied to real estate, CNBC reported in August.

A wealth divide drawn along geographic lines

Experts believe Evergrande is too large for the government to ignore. They expect Beijing to intervene in the controlled implosion. Beijing will likely prioritize homebuyers in bankruptcy management, largely to maintain social stability. However, Evergrande’s $300 billion debt load, which was mismanaged and over-sized, will still be borne by those who are not wealthy.

Experts believe that China’s wealth lines play a major role in the differences in how different families are affected.

The greatest risk is for households that have only one home.

“People who own one home, because of high prices and low income, they have some risk,” Li Gan, professor of economics at Texas A&M University and the director of the Survey and Research Center for China Household Finance at Chengdu’s Southwestern University of Finance and Economics, previously told me. “For many of them, their down payment is borrowed from friends, from relatives — not from banks.”

Sun said that “people who come from lower- to middle-income families and those who purchased properties more recently are exposed to higher risk because of the combination lower income, lower family wealth and higher prices they paid.”

The wealth divide is not only reflected along geographic lines. Li wrote that while 83% of married young people from urban families own property and less than 27% from rural families, Li said.

Li stated that this means that the intergenerational transmissions of wealth inequality are becoming more pronounced, creating an ever-widening divide between urban and rural youth.

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