How Chinese Real Estate Became the Biggest Bubble in History

Joe Weisenthal (0:02)

Bloomberg Audio Studios.

Mike Bird (0:04)

Podcasts, radio, news.

Tracy Alloway (0:18)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:22)

And I'm Joe Weisenthal.

Tracy Alloway (0:24)

Joe, we've talked before in reference to, I think it was the US real estate market.

Mike Bird (0:29)

Yeah.

Tracy Alloway (0:30)

There seems to be this weird thing going on with housing where it feels like policymakers, or maybe people even are not sure what exactly they want it to be, right? Is it supposed to be this social good, this affordable thing, we all can live somewhere that we can, you know, preferably a place we want to live in something that we can afford, or is it effectively a giant piggy bank, an investment vehicle, in which case we would expect prices to always keep going up?

Joe Weisenthal (0:58)

Yeah, right. I mean, my personal preference is for housing to be very affordable very briefly, and then that time that I buy, accumulate more housing, and then it stops being affordable. That's my, I don't, many people have different takes. I just want a very brief period of housing.

Tracy Alloway (1:14)

This is another thing about housing.

Joe Weisenthal (1:16)

It's important that in that brief period, I don't lose my job. It's very important that in that brief period, my other investments don't go down. I just want a very brief period of housing affordability.

Tracy Alloway (1:24)

But this is another thing about housing, which is like historically, it is one of the few ladders to big wealth for the masses, right? We've all heard the stories about artists in SoHo buying a loft for like $500, now it's worth 10 million, so good for them.

Joe Weisenthal (1:42)

The other thing that's interesting about housing, particularly when it comes to affordability, is that this seems to be a truly global challenge, so people have lots of theories like, oh, it's because they didn't allow zoning in San Francisco or whatever, and it's like maybe, but like I think any question about housing affordability has to wrestle with the fact that this is a really global phenomenon, so it can't be some idiosyncratic thing. It does seem as though places where housing is more affordable do not have particularly dynamic economies, so it's like I know that people are like, oh, look how cheap Tokyo is, it's like a Yen-Bi success story. But they had a massive bubble and it's been deflating ever since, and it's not like Japan is at some cutting edge of particularly any booming industries and its population is shrinking.

Tracy Alloway (2:25)

Japan's still pretty nice to live in.

Joe Weisenthal (2:26)

I'm sure it's very nice. I'm not saying otherwise. It's just clearly not where the action is. I'd love to go to Japan. It seems like one of the nice places. The other thing that's interesting about this, which is that there are all kinds of ill that sort of bedevil particularly the rich world these days. Then we look at China, it's like they have it all figured out. It seems like housing is a mess in China too. One of these rare moments where we can shake hands with China is, again, we're dealing with a lot of the same issues.

Tracy Alloway (2:53)

Well, here's the thing. China is the ultimate example of that tension between investment asset and social good.

Because even in China, as you point out, there are affordability issues. And every once in a while, you see policymakers try to put limits on house prices in really expensive cities. But then, when they start doing stuff that actually pops housing prices, everyone starts protesting, which is a rare thing in China. So that is the tension.

Joe Weisenthal (3:22)

I also find real estate speculation in China to be kind of... I thought they were communists. And I mean that unironically. Where did communists get the idea of real estate speculation?

Tracy Alloway (3:31)

Well, this is another thing, because the social net starts going away in the 1990s. And so people have to do something with their money to have retirement income.

Joe Weisenthal (3:41)

I guess the houses in the old days used to be owned by the companies. They're more dormitories than when that sort of split apart. I don't know. Maybe our guest knows more.

Tracy Alloway (3:49)

Yeah, we do have the perfect guest.

Joe Weisenthal (3:50)

The perfect guest.

Tracy Alloway (3:51)

Yes, we are going to be speaking with Mike Bird. He is, of course, the Wall Street Editor over at The Economist, and the author of the new book all about this called The Land Trap, A New History of the World's Oldest Asset. So welcome to the show, Mike.