Caixin Explains: What’s in China’s Policy Toolbox to Tackle the Ballooning Housing Stocks

China faces record-high housing inventories that have reached 748 million square meters as of March 2024, reflecting severe oversupply due to sluggish sales and falling prices in the property sector. This inventory glut has become the top threat to developers’ liquidity and prompted urgent attention from policymakers[para. 1][para. 2][para. 3]. In April, the Politburo publicly committed to a coordinated policy approach aimed at absorbing existing housing stock and optimizing future supply, marking a significant pivot in the government's strategy[para. 4]. Morgan Stanley has noted that these moves may include government-led “trade-in” programs and state purchases of unfinished buildings to convert them into affordable housing[para. 5]. Policymakers are reportedly considering the launch of a national real estate investment vehicle tasked with buying and revitalizing incomplete projects[para. 6].

The last comparable crisis occurred in 2016 when strong government intervention reduced national housing inventories from 739 million m² in February 2016 to 492 million m² by November 2019[para. 8]. In the current downturn, over 70 central policies—paired with more than 300 local measures—were introduced in the first four months of the year to boost sales and ease developers’ financing, but so far, the market slump persists[para. 9]. Analysts, such as those from CITIC Securities and Sinolink, suggest that the policy focus has now shifted from investment stimulus to inventory reduction, hinting at potentially historic changes ahead[para. 10][para. 11]. However, they warn that prevailing market conditions make inventory reduction much more challenging now[para. 12].

The severity of the issue is evident: the average inventory absorption period for new homes in China’s top 100 cities stood at 25.3 months in March—well above the historical norm of 12–14 months[para. 14]. In 41 of those cities, it would take over 36 months to clear the current stock, and in cities like Shaoguan and Xining, it could take up to 12 and nine years, respectively[para. 15]. The real scale of the problem may be underestimated due to statistical discrepancies and an influx of secondhand housing[para. 16]. New-home sales by China’s 100 largest developers plunged 45% year-on-year to 312.2 billion yuan ($43.2 billion) in April, following a similar decline in March[para. 17].

To tackle the crisis, the government is curbing land sales, with planned residential land supply dropping 18% (to 18,300 hectares) across about 500 cities in Q1 2024[para. 19]. Demand-stimulation measures include easing home purchase restrictions and experimenting with "trade-in" programs, where homeowners are encouraged to sell old houses and buy new ones, subsidized by the state[para. 22][para. 23]. Nearly 40 cities, including Shenzhen and Shanghai, have rolled out such programs, but success largely depends on demand for aging homes—an acute challenge in smaller cities[para. 26][para. 28].

Local governments are also building reserves of subsidized and rental housing via state-led acquisitions, supported by special central bank loans and China Development Bank funding. Still, fiscal constraints and the risk of government-acquired units remaining vacant challenge the long-term effectiveness of such interventions[para. 31][para. 33][para. 34].

With the vast scale of the problem, attention is now turning to the central government. Creation of a national real estate investment vehicle is under consideration, potentially requiring up to 30 trillion yuan (to acquire 4.2 billion m² of unsold property within three years), although issues related to funding, property management, and moral hazard pose significant hurdles[para. 37][para. 39].[para. 1][para. 2][para. 3][para. 4][para. 5][para. 6][para. 8][para. 9][para. 10][para. 11][para. 12][para. 14][para. 15][para. 16][para. 17][para. 19][para. 22][para. 23][para. 26][para. 28][para. 31][para. 33][para. 34][para. 37][para. 39]