By Anna Xing VI Form

The Rise and Fall of the Chinese Housing Market: Government Influence

Editor’s Note: This paper was completed as a part of the History Research Fellowship, a one-semester course available to sixth form students.

Student-Submitted Note: As the final product of my History Research Fellowship class, this paper examines the rise and fall of the Chinese housing market over the past 25 years and the government’s role in it. It first provides an overview of the birth of the market, then dives into the boom and bust of the market, and finally contrasts how foreign and Chinese state-owned medias report on the market.

“You have to enter a lottery to buy an apartment?” This was my reaction when my parents told me about how competitive the housing market was in my hometown of Hangzhou, China in 2020. This Chinese eagerness to invest in housing, however, did not appear overnight. Back on January 10, 2011, China Daily reported that “a man beaten into a coma during a fight between hopeful homebuyers and a developer in Hangzhou is rushed to the hospital.”

Figure 1: Police carried the unconscious man to be hospitalized.

This man was one of hundreds of hopeful homebuyers who brawled with the developer Dandy Holding Group Co. over suspicions that it had unfairly distributed numbers determining the order of apartment selection and purchase for the Deyi Konggang International Garden residential compound. This project attracted many prospective buyers because it offered a limited number of relatively inexpensive apartments in the city, where housing prices are among the country’s highest. According to a buyer named Ma, the developer had told him and other potential buyers to pick up their numbers on Thursday, but as some buyers began to line up for their numbers on Wednesday night, they suspected that the developer had leaked information and believed that it had issued more numbers than there were apartments. To these buyers, purchasing homes was a race against each other and a race against time. Because the developer seated buyers according to their numbers in buses to shelter them from cold weather, one buyer had calculated that “there are only 448 apartments, so it’s impossible for the people assigned to buses after the 15th to buy an apartment, given that every bus has at least 30 seats.” Another buyer even spent 5,500 yuan to secure a spot on the sixth bus. 

If lining up early could earn you a chance to buy a home in 2011, by 2018 this strategy no longer worked as new policies limiting the prices of new homes resulted in them having lower prices than second-hand homes, causing more buyers to rush in for immediate profits. On June 1, 2020, 223 newly launched housing units in Jiangbei, Nanjing attracted 12,815 buyers to the lottery to purchase these dwellings, yielding a winning rate of 1.7%. At the end of May 2020, more than 60,000 people signed up to buy the 959 units that the Sino-Ocean Xixi Residence project in Hangzhou was pre-selling Thus the purchasing rate was a measly 1.60%. The new policy directly resulted in this housing purchase frenzy as it limited these units in Hangzhou to about 28,000 yuan per square meter, while the price of surrounding second-hand houses was around 40,000 yuan per square meter. Shenzhen had a similar policy that limited the price of four hot real estate units to no more than 63,000 yuan per square meter.

Housing lottery participation in Hangzhou saw its peak from 2018 to 2020 and experienced declining popularity in 2022 as the number of household participation decreased from 69,3000 to 22,2000, accounting for only one-third of the number in 2021. As a result, the average winning rate in the new house lottery increased from 18.52% in 2021 to 35.1% in 2022. As consumer spending decreased, the market entered a downturn during which housing prices in most cities began to drop, many developers faced increasing debt, and home buyers feared not getting the homes they paid for. These troubling signs drew much attention because the property sector is the single-biggest contributor to China’s GDP, the second-largest economy in the world. 

These phenomena, some unique to the Chinese housing market, have inspired me to research the causes behind the market’s rapid growth and the recent crisis. By exploring the rise and fall of the Chinese housing market over the past 25 years, this paper argues that the Chinese government’s unrestrained support of the housing sector, as shown in government policies encouraging developers to take the borrow-to-build model, is the most important factor that resulted in the boom and bust of the housing market. The government’s failure to intervene when the developers’ debt was still controllable and its sudden clampdown on debt worsened the ongoing crisis and the troubles of large developers like Evergrande. The central government’s effort to stabilize public sentiment during the early stages of the crisis led state-owned news sources to provide falsely positive views of the market by focusing on governmental measures to improve the developer’s financial status instead of the crisis that was unfolding.  

This paper will first present the historical context for the housing market. From 1940 to 1980 urbanization created a mass movement of people to cities, creating a huge demand for housing that prompted the government to purchase privately owned properties and introduce the work-unit system to make housing available to more people. Through a series of housing policy changes during the next decade, the government commercialized and privatized housing, which led to the birth of the housing market in 1998. Then the housing bubble from 2003 to 2013 brought extraordinary housing price growth in top-tier cities compared to modest growth in lower-tier cities. Factors such as government policy, rising land value, and increasing levels of urbanization contributed to the boom. However, by 2020 the difference in reporting between news run by the central government and foreign news media led to the uncovering of the troubles of major developers such as Evergrande and the government’s failure to control the crisis. After exploring all of this, the paper will delve into predictions about the future of China’s housing market and suggest lessons learned from the crisis for both the government and investors.

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Anna Xing is a VI form boarding student from Brookline, MA. Anna enjoys studying history and English literature. Anna is an avid reader of thriller and hopes to study history and economics in college.