Working Paper: NBER ID: w27697
Authors: Kenneth S. Rogoff; Yuanchen Yang
Abstract: China’s real estate has been a key engine of its sustained economic expansion. This paper argues, however, that even before the Covid-19 shock, a decades-long housing boom had given rise to severe price misalignments and regional supply-demand mismatches, making an adjustment both necessary and inevitable. We make use of newly available and updated data sources to analyze supply-demand conditions in the fast-moving Chinese economy. The imbalances are then compared to benchmarks from other economies. We conclude that the sector is quite vulnerable to a sustained aggregate growth shock, such as Covid-19 might pose. In our baseline calibration, using input-output tables and taking account of the very large footprint of housing construction and real-estate related sectors, the adjustment to a decline in housing activity can easily trim a cumulative 5-10 percent from the level of output (over a period of years).
Keywords: China; Housing Market; Economic Vulnerability; COVID-19
JEL Codes: F39; G01; R3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| housing market dynamics (R31) | household financial stability (D14) |
| housing market performance (R31) | GDP (E20) |
| decline in housing activity (R31) | GDP (E20) |
| housing sector performance (R31) | economic resilience (R23) |
| oversupply of housing (R31) | downward pressure on prices (D41) |