| > Maybe housing costs are what's causing the slump (if there is one)? Yes, that's how the business cycle has worked in western countries since the classical antiquity. The largest component of urban housing costs is the price for access to land, and payments for access to land are surplus payments beyond what is necessary for land to be supplied, because land is a fixed a natural resource with no labor cost of production. An increase in land banking and the holding of real estate for investment purposes decreases the supply of land available, increases payments for access to it. This increases the market valuations for real estate value based on the increase in the capitalized value of future rent payments. This increases the opportunity cost of investing money in productive businesses which employ labor to produce goods and services relative to putting money into land. This decreases investment in production of non-land goods and services which have a labor cost of production, which decreases the demand for labor, which decreases wages. Decreased wages then lead to decreased consumption which leads to decreased ability to pay rent, which then results in a drop in property valuations based upon capitalized rent payments. After a sustained period of rents increasing faster than wages, the property bubble usually pops and results in an economic depression. One solution to avoid this problem is through taxing and redistributing surplus land rents through a land value tax, which countries such as Taiwan have implemented. China has people smart enough to clear this hurdle and find creative solutions to continue rapid growth, but since Xi has consolidated power and gone back to heavily promoting Marxism as the economic model for China's future, the current political situation makes it seem unlikely that they will actually do so. |