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China has over 50 million vacant new homes and why you should care

For a while now, I've been writing about our increasingly unhealthy housing markets in the U.S. and particularly in California. Paradoxically, I've been doing this in the face of the rising voices of political and YIMBY panic everywhere that "something must be done" now to "fix the housing crisis" by building more and more as fast as possible.

Well, it just might be that the markets are about to fix that crisis in their own way.

It was recently reported that China now has or probably more like admits to having more than 50 million vacant new homes in its urban areas. To put that in perspective, that represents one fifth of its entire (mostly new) urban housing stock. Try imagining one fifth of San Francisco's homes being unoccupied, because they are being held vacant for speculative investment.

Everyone is under the illusion that China and their economic miracle is too big to fail. Perhaps. But, everyone said the same thing about Japan many decades ago, when the real estate "value" of the Imperial Palace was supposedly worth more than all the real estate in California.

Still, you ask, why should I care?

The answer is because in a global economy and particularly in relationships with countries like China's, which has strong ties to US debt and an important pan-Pacific real estate investment relationship, it doesn't take failing to cause big problems. A hiccup will do.

No economy has ever grown as big and as fast as China's in the history of the world without experiencing significant downturns and recessions / depressions along the way. Yes, China's central government controlled "market" economy and currency are essentially rigged and closed to foreign influences, so China can defy gravity... a bit longer. But, that ironically may end up making its faltering that much more painful.

California's economy and our real estate markets are strongly influenced by what happens in Asia and the Pacific Rim and the business and investment they generate. To paraphrase an old economic maxim, when China sneezes it's very likely that the Pacific Rim and California will catch a cold.

With trade tensions rising, the dollar getting stronger, and interest rates rising, right now it looks like China is precipitously close to that kind of faltering event. And, if and when that happens, it is very likely that we will see similar scenarios play out like what we saw when Japan's miracle came down to earth, the last time around.

The repatriation of investment funds would be enormous just at a time when our personal, local, state and federal debt is equally enormous. And, once again, if that tide goes out, it will reveal that a host of banks, investors and developers in California have been swimming naked. And, once again, our government will be caught flat-footed still fighting the last war.

California's movers and shakers are now dead set on loading an almost endless list of new taxes, fees and penalty assessments on individuals, businesses and cities.

So, one has to ask, what will happen if that momentum collides with a significant market slowdown?