In an effort to control runaway home prices in some cities, China is pushing property speculators toward others. For residents in these working-class regions, the changes are “impossible to stomach.”
If you ask the residents of Hengshui, China, what their city is known for, they’ll likely cite two things: a throat-singeing grain alcohol and a public high school whose military-style education yields some of the best scores on the national college entrance exam each year. But in first few months of 2017, Hengshui garnered an additional claim to fame: This small city in China’s dry northern plain became one of the country’s hottest housing markets.
The property boom began around the arrival of Chinese Lunar New Year, a time for sweeping out the old and welcoming in the new. And while property speculators were a new sight in this working-class city, reactions were anything but welcoming. The frenzy of home buying sent prices soaring out of reach for local residents. Even the large population of people who own multiple homes couldn’t find comfort in what, to American eyes, might look like a sudden windfall.
“Every housing developer and property speculator is working together to cruelly eat up the hard-earned money of the people of Hengshui!” read a post that circulated on WeChat, China’s most popular social media platform. “We ask the people of Hengshui to come together and refuse to buy houses within the next 1 to 2 years, to allow homes to rot in the hands of speculators.”
The property boom was so large, and happened so fast, that it caught most residents off guard. At one development project near the central train station, prices rose by 2,000 yuan per square meter ($27 per square foot) in one month from March to April. The latest available data from real estate companies showed prices increasing by at least 60 percent in the city center between January and May. Other estimates suggest the increase in some parts of the city was even higher. Speculators now account for 30 to 40 percent of the Hengshui housing market, according to industry insiders.
This story isn’t unique to Hengshui. For the past two years, China’s policymakers have struggled to address a nationwide epidemic of overbuilt housing while keeping volatile urban property markets from running wild. With tight controls on money leaving the country and investors still reeling from a major stock market decline in 2015, money has poured into housing speculation. The result has been a controlled game of housing policy whack-a-mole, in which policymakers quickly clamp down on buying and selling in one area, only to push it along to the next-most-attractive housing market.
This has happened in more than 55 cities around the country, yielding at least 160 housing market restrictions since late 2016, according to Economic Observer. First, the controls hit China’s megacities, including Beijing and Shanghai. Speculators then moved to large second-tier cities and smaller cities on the periphery of large urban centers. Now the policy direction is in its third stage, financial magazine Caixin explains, with policies aiming to “guide private capital far away from hot economic areas and to third- and fourth-tier cities or smaller county seats.”
That’s how speculators found their way to Hengshui. On an old block of Zhonghua North Road, full of renovation businesses, barbecue stalls, and convenience stores, residents now find themselves complaining about housing prices whenever the topic comes up—and it comes up often. In conversations over two days in May, reactions to the housing boom, regardless of age or gender, were almost identical. For the laobaixing—the common people, or something akin to the working class—the changes were jieshou bu liao: impossible to stomach.
Gao Yingqiu, a self-described day laborer who lives on the block, was planning to buy a second house this year. “Now it’s too late; we can’t afford it anymore,” he says. He and his wife work seven days a week in physically demanding jobs. He needs money—and housing—to support his parents, his children, and his own eventual retirement when he can no longer work. Like much of China’s working-age population, he is working for three generations at once.
Gao, a rural resident who works in the city, bought a house a few years ago. “No matter how much money it costs, you have to buy a house. It’s like food: no matter how expensive, you still need to eat,” he says. In Hengshui, he estimates, basically every urban resident owns two houses. Rural residents like himself strive for one, in addition to their land in the nearby countryside.
In the United States, homeowners are likely to welcome a housing boom, which increases the value of their largest asset. In Hengshui and small cities across China, however, houses are viewed as everything except investments. They are places to live; they are social requirements in order for children to have marriage prospects; they serve as a home for aging parents; and they are savings accounts. Because banks offer negative real interest rates and the stock market is unpredictable, housing is seen as the best way for anyone with savings to hold on to it. Here, having two houses is considered the very basic requirement to stay afloat.
The people of Hengshui bristle at the notion that they are investing, because unless they are buying a third or fourth house, they have no intention to sell. Investing in houses is what speculators do; buying houses and giving them to family is what the common people do.
“There are two categories of the working class in Hengshui,” explains Zhang, a firefighter who only provided his surname. “Those who need to buy houses right now and those who do not.” Those who need to buy houses are people with children nearing marriageable age who do not have a house to give to them, and who don’t have a rural home to go back to themselves. Those who don’t need to buy a house are those with young children, or those who already have two houses in the city.
“My oldest daughter is 11, so I don’t need another house yet,” Zhang says. “But in about 10 years I will need to buy another house to be able to give to her.” With family roots based here, and housing in bigger cities even more expensive, there is no choice but to buy in Hengshui, regardless of price.
There are few things more foreign to me than an obligation for working-class people to buy multiple homes. I ask everyone I meet in Hengshui about their dedication to provide each of their children with a house. “It’s an obligation to buy your kids a house. It’s a tradition,” says Yu Ying, a mother of two who runs a small renovation business with her husband. It used to be that only males needed a house to be considered eligible for marriage; now, with increasing gender equality, that standard applies to females, too. “If we wait until the children are grown up and let them buy a house, think of how expensive it will be!” she says.
This predicament is connected to China’s broader urbanization strategy. Egged on by decades of pro-urban policymaking that concentrated resources and opportunities in a small number of superstar cities, places like Beijing now suffer from what the government calls “urbanitis” or “city disease”—an illness whose symptoms include overcrowding, traffic, and air pollution. Meanwhile, smaller cities, which relied on land acquisition and housing development to fill public coffers, are racked with a surplus of unwanted homes.
To address these issues, in 2015 the central government announced plans to create 20 “city clusters,” or megalopolises, including the 130 million person “Jing-jin-ji” cluster encompassing Beijing and the surrounding region. In the next few years, policymakers want to relocate huge numbers of people, industries, services, and economic activity from Beijing to Tianjin and Hebei, which includes Hengshui.
A new high-speed rail that will begin construction this year will cut travel time between Beijing and Hengshui down to one hour, from at least 2.5 hours. Another scheduled to open in October will link Hengshui to Shijiazhuang, the Hebei provincial capital, in 40 minutes—less than half the current travel time. In April, the central government announced the creation of Xiongan New Area, a new economic zone to rival Shanghai’s Pudong district. It will rise out of nothing in a rural section of central Hebei, just 140 kilometers from Hengshui. These new connections, combined with home buying and selling restrictions in nearly every other city in the province, made Hengshui a prime target for speculators.
Redirecting investment toward Hengshui represents a step toward integrating out-of-the-way cities into the country’s main economic engines, and to addressing the housing oversupply problem that has vexed top leaders. Yet with housing so central to the working-class sense of economic security and social obligation, leaders have been forced to respond to the speculative boom. At the 2016 Central Economic Work Conference, the top government meeting to determine the country’s economic direction, policymakers stressed, “Housing is for living in, not for speculating with.” Hengshui now remains just one of three cities in Hebei province that has not instituted explicit controls on housing; other cities long ago restricted residents with only one house from buying another property, prohibited anyone with two or more houses from selling, or raised minimum down payment levels to 50 percent or higher.
Some residents of Hengshui hope the government will step in—others have long since given up. They hope that as the economy grows, wages will eventually rise back into line with housing prices and families will once again be able to afford to buy housing. Yet on a macro level, major questions remain about the viability of this housing policy strategy. Clampdowns on buying and selling may have shifted speculators away from major cities, but, Caixin notes, smaller cities still lag far behind in their ability to attract new residents and businesses. Places like Hengshui may end up with high housing prices and little else.
With prices already at unprecedented heights and pressure mounting for the government to take more restrictive measures, speculators’ fortunes in Hengshui are already dimming. Locals tell me that investors have now set their sights on the next small city, Dezhou, just across the border in Shandong province. Prices are already rising there. If the people of Dezhou want to participate in the economy and fulfill their familial obligation, they also must buy houses. They will watch property prices grow out of reach, and for them, too, it will be impossible to stomach.
Wang Xinling contributed additional research to this report.