Property Bubbles Promotes Homelessness: China Edition

Property bubbles also reduces the disposable income of marginal fixed income earners who will have to pay more for rent and likewise reduces the affordability of housing for the general populace.

That’s how I earlier described the impact of property bubbles to a society which addicts of inflationism choose to ignore.

Well it appears that the property bubbles in China appears to be confirming my view.

From Reuters:

Zig-zagging left and right through a maze of dark, narrow corridors in a high-rise's basement, 35-year-old kitchen worker Hu has joined the many thousands of Chinese fleeing fast-rising property prices by heading down - down underground.

Hu lives here beneath an affluent downtown apartment building, in a windowless, 4 square-meter (43 square-foot) apartment with his wife. For 400 yuan ($65.85) a month in rent, there's no air-conditioning, the only suggestion of heat is a pipe snaking through to deliver gas to the apartments above and the bathroom is a fetid, shared toilet down the hall.

"I can't afford to rent a house," said Hu as he showed off his meager appointments. Living in basement apartments isn't illegal in China, but like anywhere else it is nothing to brag about and Hu, who guts fish for 2,500 yuan a month at a popular Sichuanese hotpot restaurant on the street above, declined to provide his given name. "If I weren't trying to save money, I wouldn't live here," he said.

Locals have dubbed Hu and his fellow subterranean denizens the "rat race" - casualties and simultaneously emblems of a housing market beyond the government's control.

More:

That's pushing more and more newly arrived urbanites underground. Of the estimated 7.7 million migrants living in Beijing, nearly a fifth live either at their workplace or underground, according to state news agency Xinhua. Beijing's housing authority refuted this statistic, saying in an email to Reuters that a government survey last year found only about 280,000 migrants living in basements and that only a small percentage of Beijing's basements were being used as dwellings.

Last month, authorities sealed Beijing's manhole covers after local media discovered a group of people living in the sewers below, with one, a 52-year-old car washer, reported by the local media to have been living there for at least a decade. The sewer dwellers were relocated and those not from Beijing sent back home.

Surging residential prices are both boon and bane to the government. China's booming property sector accounts for roughly 15 percent of GDP and heavily indebted local governments rely on land sales - selling land earns them roughly three times what they collect from taxes.

But rising prices are putting home ownership farther out of reach for most Chinese, worsening the gap between rich and poor and breeding social discontent.

Surging bond yields (which translates to interest rate increases)…

(Yields of China’s 10 year bonds from investing.com)

…along with spiraling debt (e.g. local government debt which includes the shadow banking system has reached $2.95 to $3.3  trillion) and skyrocketing property prices are ingredients to a bubble bust.

Even the Chinese government as I earlier pointed out (via state newspapers) has recently warned of a “limited debt crisis”.

China’s unwieldy debt conditions is just one of the potential triggers for a Black Swan event in 2014.