China Evergrande Group has been in the news lately for being one of the most indebted property companies in the world. The company is now looking to raise some $5 billion by selling a stake in one of its business lines. That seems like a lot of money, but apparently it has upwards of $300 billion in liabilities. As I was reading about the company (in this WSJ article) I was surprised by some other stats about China’s housing market. According to some sources, nearly a third of the country’s GDP can now be tied back to real estate-related activities (see above chart). On top of this, about 21% of homes in urban China were thought to be vacant as of 2017. This equated to about 65 million empty homes. I don’t know what the exact numbers look like today, but these are staggering figures that speak to overbuilding.
Isn’t it just over-pricing or over-speculating, rather than over-building? If there are people who could benefit from newer or better housing, perhaps so they could live in urban areas where they could earn a better living, especially if they are currently peasant farmers without title to “their” land, aren’t they still under-housed? This is true even if the housing is priced too high for them to afford….for now.
A Land Value Tax would bring land speculation to an end, and prices to realistic levels, while untaxing actual buildings would encourage more and of them and better use of land.