Abstract:This paper estimates the misallocation of residential housing and population at the city level in China. We argue that there is no oversupply in China's real estate market, but rather a misallocation. Statistically, larger cities with denser populations have relatively fewer houses, while smaller and medium-sized cities with less population may have an excess of housing. Dynamically, cities that will see an influx of population in the future have the least housing, while cities that will experience population outflow will have the most. According to our calculations, the current "shortage" of residential housing in first-tier cities is 739 million square meters; if the population continues to concentrate in large cities, the "shortage" in first-tier cities could expand to 2.97 billion square meters or more. As China's real estate market enters a more sustainable development phase, and even enters the stage of existing housing, the spatial misallocation of housing has significant implications.
Firstly, the performance of the housing market will be highly differentiated. The real estate market in first-tier cities is likely to rebound and recover quickly, while that in third-tier cities may continue to be sluggish. The growth or decline of the real estate market in the future will no longer be a synchronized phenomenon across the country. Secondly, considering the spatial misallocation, China's demand for new housing will significantly increase. In reality, because the surplus housing in third-tier cities can only be left vacant, the actual construction of housing in first and second-tier cities will far exceed the physical bottom of 600 million square meters per year. Thirdly, the concentration of population in large cities (metropolitan areas) will be a trend for China's future development and an important source of economic growth. Embracing this trend can unleash tremendous productivity and improve people's livelihoods, and achieve more intensive and environmentally friendly development. However, it is also necessary to fully recognize the impact of this on areas experiencing population outflow.
