Second of four parts
NINGBO, China — Cao Sheng, a young professional living in this bustling port city, would like to move to a larger apartment so she and her husband can start a family. But with housing prices skyrocketing across China, she said, she doubts they will be able to afford one any time soon.
Even though the Caos’ home has tripled in value since their parents helped them buy it six years ago for $100,000, and even though they have been scrimping and saving half of their income, the couple still can’t afford to move to a larger apartment in a city where prices have increased fivefold in the past 10 years.
“A house forms the foundation for a family in China. But only wealthy people can afford it now,” she said ruefully.
The Caos are not alone in their frustration. Soaring real estate values in recent years have priced 70 percent to 80 percent of city residents out of the market in Ningbo, Beijing, Shanghai and other big cities.
Economists say China is in the midst of a potentially destructive bubble that is bringing hardship to many citizens but riches to the wealthy few who have money to speculate in the real estate market. They say a bursting of the bubble could send the economy sharply downward and destabilize the entire nation.
Worries about the end of the real estate boom prompted the Chinese government in the past year to institute restrictions on purchases by speculators, who now face higher taxes and must put down at least 60 percent in cash to buy second homes. On the supply side, the government has started building 10 million rental units for lower-income families.
The anti-speculative measures have had dramatic impacts in major cities, where prices have flattened since June. However, millions of typical families still cannot afford to buy homes.
Government officials who had hoped to be cultivating a contented class of middle-income homeowners now face the “serious challenge” of an “angry middle class” reacting to the high cost of housing and growing unemployment, said Cheng Li, a senior fellow at the Brookings Institution.
The researcher said the discontent is acute “particularly among young people, when they enter the middle class and find urban housing so expensive,” he said. “There is a joke in China that if you want to buy a housing unit in Beijing, Shanghai or Shenzhen, you should have started saving from the Tang Dynasty” — more than 1,000 years ago.
Mrs. Cao, an English-language interpreter, also is alarmed by the high cost of educating a child. A half-year course to learn English — which she said is essential for Chinese children to succeed in the professional world — costs about $800, a steep tab for families with average incomes in the range of $10,000 a year. Many parents aspire to send their children to American colleges, which can cost up to $50,000 a year.
The high cost of education is one reason about 5 million college graduates in China are grumbling that, because of the slowing economy, they are unable to find the plum jobs they were groomed to expect. The housing crunch that awaits them only fuels their discontent.
“The real estate bubble in China has led to social unrest, as many citizens are angry that they are unable to afford to buy a home,” said Sung Won Sohn, an economics professor at California State University, Channel Islands. “A square meter of property in China costs an estimated 164 times per-capita income,” he said.
Pumping up the bubble
China’s communist government started privatizing urban properties in 1998, and prices rose briskly. But the real estate boom really took off in 2009 and 2010 after a massive government stimulus program made it easy for wealthy and well-connected individuals to obtain cheap loans to buy housing and land. That ignited the bubble, Mr. Sohn said.