During its urbanization boom period, China was producing enough new floorspace to cover Hong Kong two times over each year, so why are there still between 20 and 45 million empty homes across China?
Over the past fifteen years China has built hundreds of new cities and districts, thousands of new urban expansion areas, wiped over a million villages off the map, and urbanized hundreds of millions of people in a development boom that’s incomparable to anything that any other country has ever attempted. Lead by a national urbanization plan, China has transitioned from a mostly rural country of peasant farmers to one that is defined by its cities. But this urbanization drive has produced a peculiar side effect: newly built urban areas and even completely new cities that lack people.
There is a twist of irony in China’s new urban condition. While enough floorspace to cover Hong Kong twice over is being constructed each year and despite the fact that 250 million more people are expected to move into cities by 2030, regardless of the fact that the demand for modern urban housing is extreme, an incredible amount of apartments are currently vacant. According to various surveys, there are between 20 and 45 million empty homes across China. At a rough estimate, this is 600 million unoccupied square meters of floor space – enough to completely cover Madrid. So this begs the question: if so many people need homes in China’s cities then why are there so many of them left empty?
1. Not built yet
Xinyang, Yujiapu, Erenhot, and many other new developments across China were still very much construction sites when they were labeled ghost cities by the international media. Construction on Ordos Kangbashi began a mere five years before Al Jazeera arrived and derided the place as a being a ghost town that “nobody” lived in and later made the accusation that it was little more than a plot by local officials “hell-bent on boosting their regional GDP – often a criteria for their promotion.” A year later Business Insider would publish a collection of satellite images of what they dubbed China’s ghost cities, but from even a lay analysis it was clear that most of them were still construction sites. Obviously, not many people are going to live in a place that isn’t built yet.
2. Built too early
Almost by definition, new cities tend to be built in areas beyond the fringes of urbanization, and without this broader support infrastructure it is a major political, economic, and social project to break the inertia and make them come to life. While China has means of doing this — such as by moving universities, government offices, and state owned enterprises into new areas — it is still a long term process. China’s new cities are not being built for today or even tomorrow, but decades from now. Generally speaking, most new large scale urbanization initiatives are built on 20 year time lines between when construction begins and when it is projected that they will be fully populated — and hardly a single new city in the country has yet eclipsed its developmental deadline.
3. Built for land sales
China’s urbanization program is pushed into motion by a fiscal policy that all but demands local municipalities to expand in order to remain economically solvent. According to the World Bank, China’s cities must fend for 80 percent of their expenses while only receiving 40 percent of the country’s tax revenue. Land sales are often used to make up the difference. Land in the outskirts of cities is bought by municipalities at the low rural rate, rezoned as urban, and is then sold to developers at the high urban construction land rate. The profits are huge. The Ministry of Finance claimed that land sales raised $438 billion for China’s local governments in 2012 alone. Corruption and errant spending aside, this money is often essential for sustaining urban infrastructure, funding public institutions and facilities, and various other social programs. So cities expanding beyond their current needs is all too often a built in inevitability of China’s fiscal framework.
4. Developers must build immediately
There is another twist in China’s urbanization process that drives the building of urban infrastructure in areas that are currently ill prepared to support it. The prevailing notion among developers here is that they need to get in early to make a profit. This means buying new urban construction land directly from local governments as soon as it’s made available. All too often this is land is located in new development areas that lack any semblance of urbanization or even a population. But developers in China are not permitted to just sit on plots of land and wait for the area around it grow. No, if they wish to purchase this land and “get in early” they must built something on it almost immediately. In the initial development stages this often translates to the things of cities being built in the proverbial middle of nowhere. But as developers of residential property take out 72 year leases on the land and new buildings in China often only have a lifeline of 30 to 35 years, this means that they should have at least two shots at building something to recoup their investment. So what we all too often see in the new urban China are essentially rough drafts of what will eventually become.
5. The chicken or the egg scenario
Nobody is going to move into an area that lacks civic essentials like health care, schools, functioning shopping centers, places to work, and public transportation, and local governments and businesses are hesitant to produce these things in areas where there are no people. While the Chinese will buy property in new development areas where there isn’t yet an economic or social pulse, few will actually move in until it starts to show some convincing vital signs.
6. Housing purchased by people with no intention of living in it
The first wave of residential properties that are often built in China’s new urban developments are what are called commodity homes. This is real estate that is at the whims of the market, and prices can fluctuate based on supply and consumer demand. With the craze of home buying that has swept the country in recent years the price of this type of real estate has soared, often well beyond the means of most Chinese.
Up until very recently, China’s housing market was loaded with speculators, people looking to store their excess savings in real estate, individuals aiming to launder illicitly received funds, and other parties who were buying property they had no intention of living in. This feeding frenzy of economic activity often pushed the prices of real estate so high that the pool of potential residents was severely cut down. This has lead to an intriguing urban condition where many new cities and districts across China stand mostly empty, even when all the houses have sold, leaving them to look like ghost towns.
Although having masses of readily available home buyers kept development profitable and the wheels of China’s new city building movement spinning, the broader impact derailed efforts to build population bases in many new urban areas, and subsequently became a social, political, and economic problem. This is an issue that various levels of government in China have moved to correct, and they have successfully initiated policy aimed and limiting speculation, inhibiting the ownership of multiple properties, curbing the buying of property with the spoils of corruption, and creating alternative investment options so the general population no longer feels as compelled to keep their wealth in real estate. This has lead to a lowering or leveling off of property value and increased availability, which has made housing more economically accessible to a wider swath of the population in new urban areas — but the impact of the free-for-all era still lingers in the empty streets of many new cities and towns across the country.
7. Purchased for the future
Similar to people purchasing housing as an investment, many Chinese buy new properties for future use — such as for their children when they get married or as a retirement home for themselves or their parents. There are 13 million weddings per year in China, and newlyweds make up one third of all new home purchases. Many of these homes are purchased in advance of their actual need.
New homes in new development areas are often purchased with the understanding that the neighborhood — or entire city, in some cases — is a work in progress that won’t really be ready for habitation for an extended amount of time. New home buyers rarely plan to move in hastily, which is exacerbated by the fact that a huge portion of new apartments that go on the market are just concrete shells which the buyer needs to built the interior fit out for. So even when there is a desire to move into a new home as soon as possible, the minimum amount of time needed to do so is often measured in years.
8. Lack of Economically Affordable Homes
The other type of residential property in China is called “economically affordable homes” (baozhang xingzhu fang), which is housing that is subsidized by the government and has strict controls on the initial sale price, inhabitance, and subsequent resale. These houses are meant for low or middle income people who actually intend to live in them, not wealthy investors looking to spin a profit. As new economically affordable housing can only be sold for 3-5 percent over the cost of production, local governments and developers are often not too keen on building much of it. As of now, this type of housing only comprises only about 3 percent of the new housing being built in China — although this figure is set to rise to 23 percent, according to China’s new urbanization plan. That said, economically affordable housing is often one of the last elements to be added to large scale new city projects, which adds to the reasons why these places often have a deficient population for a extended amounts of time.
9. Local government not yet prepared to support a mature population
Building new urban areas is a major financial boon for local governments. Land sales bring in massive profits and the puppet companies they set up to obtain loans bring in massive amounts of available cash. But when people begin moving into these new urban areas they start costing the local governments money. All of a sudden there needs to be public institutions, like hospitals, schools, and public transportation, and services like health care and welfare. So there is often an extended delay between when a new development appears to be a city and when it actually has the infrastructure to support a population, which contributes to the amount of time that these places linger in what could only be called the ghost city phase.
While not every mining city can successfully be transformed into the next boomtown and not every blank canvas of countryside can be painted with an urban landscape, if given enough time most of China’s new cities and towns sufficiently develop to become kinetic urban entities. From 2012 to 2014, Standard Chartered bank found that Zhengdong New District, one of the places featured in 60 Minutes’ Chinese real estate bubble report, had an occupancy rate that doubled, while the populations of other oft-mentioned “ghost cities” like Zhenjiang’s Dantu and Changzhou’s Wujin grew by two to four fold. We’ve also seen similar developments with Guangzhou’s Zhujiang, Shanghai’s Pudong central business district — China’s original ghost city — as well as hundreds of other smaller, more inconspicuous new towns and urban expansion projects across the country.
There is more going on behind the scenes of China’s scantly inhabited new urban areas than excessive government spending, bankruptcy, over-supply, waning consumer demand, and nefarious plots to boost GDP. While these elements are certainly all parts of the equation they do not add up to the entire reason why in the world’s most populated country there are cities devoid of people. What we see when we look out across the vast expanses of China’s new cities and towns is an urbanization initiative like the world has never seen before, which is very unique in and of itself, and vastly more complex than a snapshot of vacant high-rise apartments can tell.
This article was originally published on CityMetric.