Li Gan: “Ghost” Towns?: Why 50 Million Housing Units in China are Vacant

Housing Market and Urbanization

Southwestern University of Finance and EconomicsTexas A&M University

Li Gan

An Introduction of CHFS1

Vacancy rates in Urban China2

The mystery of the vacancy rate3

Contents

目录

Part 01An Introduction of China Household Finance Survey (CHFS)

Coverage

2011

40000 households

29 provinces 363

cities/districts/counties 1439 communities

8438 households

25 provinces 80 cities/districts/counties 160 communities

2015

2013

28141 households

29 provinces 262

cities/districts/counties 1048 communities

Jiangxi

Anhui

Heilongjiang

Guangxi

Chongqing

Jining

Yunnan

HunanHe

beiHe

bei

Fujian

Sichuan

Inner Mongolia

Henan

Guizh

ou

Ningxia

Zhejiang

Shandong

Liaoning

Gansu

Guangdong

Tianjing

Jiangshu

Shannxi

Shanxi

Shanghai

Beijin

g

Natio

nwide

12.6% 13.9%

15.4%19.1%

35.1%

16.4%

15.2% 19.2%

8.5%

25.3% 30.7%17.0%

Population shares of Housing Provident Fund

Official CHFS

Part 02The vacancy rate in Urban China

2011 2013 2015

89.7% 90.8% 92.7%

14.2% 16.7% 19.2%

Nationwide

Ownership rateMulti-house ownership rate

2011 2013 2015

84.7% 87.0% 90.3%

15.9% 17.9% 21.2%

Urban


2011 2013 2015

95.9% 96.4% 96.6%

12.0% 14.8% 16.0%

Rural


Rising Home Ownership Rates

2011 2013 20150.0%

5.0%

10.0%

15.0%

20.0%

25.0%

4.4% 4.0% 4.1%

16.0% 17.6% 18.7%

From one-house familiesFrom Multiple-house families

22.8%21.6%20.4%

Vacant houses(mil unit)

Vacant area(bil sq m)

2011 41,140 4.43

2013 47,270 5.09

2015 54,380 6.09

Vacancy rates in urban China

2011 2013 20150.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

17.3%19.8% 19.8%

16.3%

21.4% 21.6%25.0%

22.2%25.2%

Vacancy rates by city-tiers

First tier cities Second tier citiesThird or lower tier cities

United Nations

Seasonal vacancy

VacationSeasonal

Others

Non Seasonal vacancy

The second houseFor rentFor sale

For demolitionothers

For Rent and For sale Yes for all countries

Vacation/seasonal All countries except Germany and Spain

The second house All countries except Germany and Spain

For demolition/ remodeling

All countries (including Japan)

except USNot for living

purposes (offices, warehouses etc)

US: no

Under construction Japan: yesUS: No

How to define a vacant house?

Shares Contributions Units (10k)Vacation or seasonal 2.70% 0.63% 149Long term vacant 29.00% 6.61% 1576Occasional use 10.40% 2.38% 567Weekend use 2.10% 0.48% 114Work or schooling 7.00% 1.59% 378Second houses by owner 11.70% 2.67% 637 Temporarily used by a family member 12.10% 2.75% 657 sum 17.1% 4078

Long-term used by another family member 2.90% 0.66% 158Used by friends and relatives 6.40% 1.46% 348Not ready for living 15.70% 3.58% 853 Not yet remodeled or in remodeling 11.80% 2.69% 641 Under construction 3.70% 0.85% 203 To be demolished 0.20% 0.04% 9

Vacancy rates in urban China

Vacancy ratesNumber of vacant

units(in millions)

Current 22.8% 54.4

Japan comparable 20.7% 49.3

Most EU country comparable

20.0% 47.3

US comparable 17.7% 38.8

Different calculation of vacancy rates

US 2015

Japa

n 2013

UK 2015

Taipei

2014

Singa

pore

2013

Hong K

ong 2

013

Urban

Chin

a 201

50.0%5.0%

10.0%15.0%20.0%25.0%

12.9% 13.1%

2.7%7.6% 6.2% 4.1%

22.8%

International comparison

Commer

cial H

ousin

g

Social

welf

are h

ousin

g

From

hou

sing r

eform

Collec

tive f

unded

Self-

built

Demoli

tion re

place

ments

Other

s

22.6%

31.9%

13.3%9.4%

18.9%14.3%

32.5%

24.7% 22.6% 13.0%

10.9% 12.7%16.8% 18.2%

25.2%

20.1%14.3%

12.3% 15.9%19.4% 20.5%

Vacancy rates from different sources

2011 2013 2015

2011 2013 2015

Commercial Housing 47.6% 50.4% 59.2%

Social welfare housing 3.5% 4.0% 3.0%

From housing reform 7.4% 8.2% 8.2%

Collective funded 2.6% 2.8% 2.5%

Self-built 24.4% 17.3% 13.2%

Demolition replacements 4.0% 8.3% 6.7%

Others 10.4% 9.1% 7.2%

Contributions to the vacancies

60% of vacant houses are commercial housing

Vacancy rates in 2015

From non-residents

From residents

Vacancy rates in 2013

Beijing 23.5% 3.9% 19.6% 19.5%

Shanghai 20.3% 0.8% 19.5% 18.5%

Tianjin 24.0% 1.1% 23.0% 22.5%

Wuhan 24.7% 2.0% 22.7% 23.5%

Chengdu 27.3% 1.5% 25.8% 24.7%

Congqing 24.4% 2.8% 19.0% 25.6%

Vacancy rates from new purchases are rising

≤2 years 3-5 years 6-10 years 11-15 years 16-20 years ≥ 21 years0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

33.6%

23.2%

12.6% 10.4% 12.5%16.7%

57.2%

28.1%

16.3%13.1% 12.9% 13.6%

2013 2015

Factors related to vacant housing Marginal effect

If income doubled + 0.6 percentage points

Head one more year of education + 0.6 percentage pointsWith unmarried young men + 2.2 percentage pointsOwn businesses + 11.2 percentage pointsHigh risk-taking altitude + 5.3 percentage points

House price rental ratio doubles + 6.1 percentage points

First house yields a double return + 0.2 percentage pointsUrbanization rate increases by 10 percentage points - 2.6 percentage points

Why households own vacant units

19

Current Housing prices fall by 5%

Housing prices fall by 10%





4.0%6.6% 7.6%

10.4%14.2%

18.8%

24.2%

5.4%

17.1%20.2%

28.0%

36.3%

42.3%

49.1%

Non-vacant Housing Vacant housing

19

A stress test reveals a substantial risk for China’s housing market

Part 03The Mystery of Vacancy Rates

The mystery of the vacancy rate

Most developers/government officials/researchers may disagree: Between 2000 and 2010, about 70 million additional families in

the city. From 2000 to 2013: net increase 70 million units of housing The aggregate housing demand/supply in urban China are

roughly balanced.

Where to find 50 million vacant units?

Completed new construction

10.4 billion sq meters

Demolition and reallocation 3 billion sq metersNet increase 7.04 billion square

meters

1998

1999

2000

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

33.35%36.22%

49.68%56.10%

Urbanization rates in China

About 1.3% or about 16 million people year become urban residents.

23

Urbanization in general

Many researchers would equalize urbanization as migrants who leave their rural homes to go to urban areas to work and to live.

In fact, urbanization in China is quite complicated.

Some changed their Hukou from rural to non-rural.

Some relocated to urban areas.

Some never moved but their areas are turned into urban areas.

Urban resident

s

Rural residents

Non rural Hukou

Rural Hukou

Rural to Urban

Original Nonrural Hukou Land

acquisition, house demolition

Education, Employmen

tbuy houses

Rural Hukou

Nonrural Hukou

0.9%10 mil

8.0%110 mil

Redefined

MigrantsRelocatin

g Migrants

11.1%150 mil

9.1%125 mil

40.2%560 mil

2.4%30 mil

28.4%390 mil

Data Source: CHFS

25

Variables Overall demand

Rigid demand

Upgrading demand

Redefined migrants (in percentage points) -10.7 -8.1 No

difference

Relocating migrants (in percentage points) -7.6 No

difference -4.7

Redefined migrants have less housing demand

Rigid demand: those who don’t have an apartment in the city of their living and grown-ups who live with their parents.Upgrading demand: 20-year old apartments

There are more Redefined Migrants than Relocating Migrants.

Treating these two types of migrants the same lead to a substantial overestimate of housing demand.

Misunderstanding urbanization is likely a cause of 38 million overbuilt units of commercial housing in China.

26

Summary

27

Restimating urbanization rates in China

How an area is reclassified to urban: connectivity

An administrative village is often consisted of 8 natural villages.

If the village center is connected to a town center:

A connecting road is built

Along the connecting road, most are non-farm land or buildings.

The whole administrative village is reclassified as an urban area.

CHFS’ corrections on urbanization rates

Data sources： CHFS, NBS and local statistical bulletins

National Guangdong Hebei Jiangsu Sandong Sichuan Zhejiang Chongqing0

10

20

30

40

50

60

70

80

56.1

68.7

51.2

66.557

47.7

65.860.9

5.811.1 10.7 8.9 8.6 8.2 5.7 4.2

Urbanization rates and CHFS correction

NBS Urbanization Rate Correction

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