China’s Housing Pain Ratio + 3 Reasons Why Housing Prices to Income Should Be High in China
The following article talks about a ratio between housing pricing per square meter and monthly income, and then goes on to argue that, on a relative basis (comparing income to housing prices), China has many of the most expensive housing markets in the world. While it does make some decent points (and lends further credence to the notion that China is likely in the upper reaches of a housing bubble or at the least a housing boom), there are a couple of reasons why housing prices in China, measured by such a ratio, would of necessity be higher than much of the developed world.
3 Reasons Why Housing Prices to Income Should Be Higher in China
- With incomes in China still low on an absolute basis, you would expect that Chinese people on average could only afford smaller places, and that each square meter of such a place would eat up a good bit more of a Chinese person’s income (on a relative basis) than the income of a person from a richer country.
- Population density in China is quite high, and higher per square meter property prices (especially relative to low incomes) are a natural result of this reality. Also, one would expect that people living in more densely populated cities or countries would live in smaller abodes than people in less densely populated areas.
- Average incomes in China don’t tell the whole story. More than a few people “earn” 4,000 RMB a month but receive far more than this in “bonuses” or even under the table money.
Nonetheless, it is undeniable that affordable housing is out of the reach of many Chinese people, and that over the past several years this gap has only been widening. Endless appreciation in housing prices is not necessarily what is coming for the Chinese home-owner in the next several years. Instead, prices are likely to drop. Here is the article, translated out of Modern Weekly:
China’s Housing Pain Ratio
China housing prices are becoming more and more of an unbearable burden with every day that passes. The “housing pain ratio” is a manifestation of this problem, especially in China.
Simply put, the “housing pain ratio” is a comparison between incomes and housing prices. The specific units of comparison are the price of a square meter of housing and one’s monthly income. Everyone can calculate their individual “housing pain ratio”, and in normal circumstances this ratio should work out to be less than one.
Although housing markets around the world have bubbled up over the past ten years, the “housing pain ratio” has remained under one for the majority of countries.
According to this kind of calculation, even though Tokyo had the highest housing prices in the wold, the “housing pain ratios” of some Chinese cities belong among the most expensive cities in the world, and are higher than Tokyo’s.
In 2005, every square meter of a Tokyo apartment had an average market price of 23,000 RMB, and the average monthly wage of a Japanese person living in Tokyo is slightly higher than 23,000 RMB, meaning that Tokyo’s “housing pain ratio” works out to approximately one. In comparison, Beijing’s “housing pain ratio” is calculated as follows:
6485元/1471元=4.41
In comparison with Beijing, Tokyo seems almost cheap (when using such a ratio). In 2005, China’s average “housing price ratio” was 3.22.
To a China that cares more and more about its people’s prosperity and a green GDP, the “housing price ratio” can serve as a warning indicator for China’s housing market. Also, by paying attention to this ratio, housing buyers in China can more thoroughly understand the state of the housing market.
