China’s real estate rocketship started slowing down this summer and even registered a small property price decline in June. But the potentially catalysmic drop-off hasn’t happened yet.
Jing Wu and other economists at NBER say Beijing is stuck in an unprecedented real estate bubble that will be painful to unwind (via Econbrowser). Unfortunately the bubble could be popped by a decline in prices OR production:
Private housing investment accounted for 15.1% of total investment volume in urban areas in 2008, and 13.2% in 2009. The private housing sector currently accounts for over one third (37.1% in 2007 and 36.9% in 2008) of the buildings completed by the construction industry, and the construction industry is one of the most important industries in China. Its output constitutes 5.7% of Chinese GDP; it employs 14.3% of all workers in urban areas; and it consumes about 40% of all steel and lumber produced in China.
To avoid a big collapse, Beijing needs to clamp down on speculators. And it needs millions of Chinese to move to the city and rise to the middle class.