Why China Can’t Fix Its Housing Bubble

Real estate is the driver of the Chinese economy. By some estimates, it accounts (directly and indirectly) for as much as 30 percent of gross domestic product. Keeping housing prices buoyant and development robust is thus an overriding imperative for China — one that is distorting policymaking and worsening its other economic imbalances.

Despite reforms in recent years, there's little question that Chinese real estate is in bubble territory. From June 2015 through the end of last year, the 100 City Price Index, published by SouFun Holdings Ltd., rose 31 percent to nearly $202 per square foot. That's 38 percent higher than the median price per square foot in the U.S., where per-capita income is more than 700 percent higher than in China. Not surprisingly, this has put homeownership out of reach for most Chinese.