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Behind Andy Xie's China Housing Numbers

Stocks in this article: EJ FCX SCCO

In the U.S. we have about 2.3 people her household, so 4.9 would be an eye opener. China's urban population growth is driven by migration from rural areas. Migrant workers tend to be young people who migrate at least initially without families. When they migrate they tend to live in crowded factory dormitories, but as incomes rise over time their first goal is to get a place of their own. In addition, China's natural population growth is only .6% meaning fewer children per household. And yet for every single person or couple living alone, there would have to be almost 8 or 9 people living together to reach an average at 4.9. Even including newly migrated workers the real average is much lower.

Mr. Xie's second suspect assumption is average housing size. Also using simple math we can know Mr. Xie believes there are approximately 173 million "households" in urban China. Using the middle of his inflated and speculative range for vacancy, we can know he's claiming there's about 44 million vacant households. Adding 44 million to 129 million occupied households gives us his estimate of 173 million total "households." Again all just simple math.

But here's where it gets interesting. Because he's telling us he thinks there's 17 billion square meters of total housing stock in urban China, that means with 173 million households, his numbers imply China's housing stock averages 98 square meters, or just more than 1,000 square feet. Simply not credible given what we know about China's history.

(Even if his numbers for "households" don't include factory dormitory units but his numbers for housing stock do, backing out a reasonable estimate for all dormitory housing stock from his total housing stock estimate only brings down this 98 square meter average for "households" by a small fraction. The assumption still doesn't hold.)

While it may be that housing in China built over the past 10 years averages 98 square meters, there is a huge stock of very old and very small units existing today that certainly bring the average down significantly. I was in Beijing in the late 90's and remember well. The average apartment was very small. Credible sources then argued there was as little as 7 square meters of housing stock per person in Shanghai in the mid 90's. Back then only a small percentage of Chinese urban residents could afford 70 square meters (let alone 98) and yet more than 400 million people lived in China's cities then. Mr. Xie seems to admit this in that he claims 1 billion square meters of old housing have been torn down, but then he says tear down housing averages a whopping 70 square meters.

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