A report stating that "the vacancy rate of urban household housing nationwide is 22.4%" has set the real estate world abuzz like a bombshell. Recently, Gan Li, director of the China Household Finance Survey (CHFS) and Research Center and dean of the School of Economics at Southwestern University of Finance and Economics, released a report stating that in 2013 the vacancy rate of urban household housing nationwide reached as high as 22.4%, with 48.98 million vacant urban homes; however, Ren Zhiqiang, chairman of Huayuan Real Estate (600743, Stock Bar), said that calculations based on relevant data show that it is absolutely impossible to have nearly 50 million or more vacant homes. Yesterday, at a Guangdong media briefing held by CHFS, Gan Li explained the discrepancy between his statistics and Ren Zhiqiang's, and also stated that the data are only an underestimate, not an overestimate.

Ren Zhiqiang: 50 Million Vacant Homes Impossible

According to Ren Zhiqiang's calculation method, counting from the 1989 housing reform, from 1989 to 2012 a total of 9.5 billion square meters was completed, plus 1.1 billion square meters in 2013, making about 10.6 billion square meters, roughly 110 million square meters, or about 110 million residential units. Of this, real estate (000736, Stock Bar) development accounted for 67 million units. Based on an estimated 240 million square meters of old housing demolished in 1989, about 3 billion square meters were demolished over 16 years. This yields a net increase of about 7 billion square meters of housing area.

Calculating from the 1998 urbanization rate, by 2013 the urban population had increased by about 220 million people, which can be converted into more than 60 million households. During this period, the annual number of newly formed households from marriages and divorces was 8 million marriages and 3 million divorces, rising to 13 million marriages and 3.8 million divorces. Counting urban and rural areas equally, about 70 million new urban households were added. Ren Zhiqiang believes it is certain that the number of new urban households exceeds the number of newly built housing units.

In the data from the fifth and sixth national population censuses, the proportion of a generation living alone rose from 27% to 38%, an increase of 11%. This alone added more than 30 million households. Counting from 1998, the increase is even higher. According to National Bureau of Statistics data, even when non-apartment housing is included, the household-to-unit ratio is 1:1.01. In other words, according to Ren Zhiqiang's calculations, urban housing supply and demand are basically balanced, and the 50 million vacant homes surveyed by Gan Li's team are absolutely impossible.

Gan Li, however, used data from the China Economic Information Network. In 1998, the per capita building area in urban China was 18.7 square meters, with an urban population of 420 million; by 2012, the urban population was 710 million, and the per capita building area in urban China had surged to 32.9 square meters. On this basis, between 1998 and 2012 the net increase in urban housing area was 15.6 billion square meters. This is at least 8 billion square meters higher than Mr. Ren Zhiqiang's net increase in housing area.

Gan Li: Only an Underestimate, Not an Overestimate

Gan Li pointed out that Ren Zhiqiang's newly added housing area includes only the urban housing completion area reported by the National Bureau of Statistics, totaling 10.6 billion square meters. However, the completed area counted by the National Bureau of Statistics comes from completed-area declarations by real estate development enterprises within their jurisdictions and does not include self-built family housing. Part of the self-built housing in urban areas was built before the area was designated as urban, and there are also cases of unauthorized construction. Gan Li's data show that self-built housing in urban areas after 1998 accounts for 10.2% of the total housing stock, about 22.4 million units, with an average building area of 180 square meters per household, totaling about 4 billion square meters.

Second, among non-self-built housing, some housing is also outside the scope of urban housing completion statistics, such as small-property-rights housing and housing on rural collective land use rights, totaling 830 million square meters. In addition, regarding demolition area, Ren Zhiqiang also overestimated by 1.14 billion square meters. Finally, there is a portion of newly built collective housing, affordable housing converted into commercial housing, and "bringing housing into the city" during urbanization, amounting to about 2 billion square meters. Adding the 4 billion square meters of self-built housing after 1998 counted by Gan Li's team, the gap between Gan Li's and Ren Zhiqiang's calculations is as high as nearly 8 billion square meters.

Demand Gradually Driven by Investment

Gan Li said that, judging from the statistical results, China's existing housing stock is severely oversupplied and incremental housing is severely oversupplied. Looking at rigid demand, starting in 2013, the ratio of rigid demand to multiple-home ownership began to converge gradually, meaning that China has already begun a market driven by investment demand rather than traditional rigid demand.

"There is no other reference frame at present, but the vacancy rate is higher than 22%," Gan Li said. From the experience of Europe, the United States, Japan and other countries, none has a housing vacancy rate as high as China's, but among developing countries a relatively high housing vacancy rate is a common phenomenon. According to Gan Li, over the past two or three years the housing vacancy rate has risen slightly, yet housing prices in first-tier cities have risen in the opposite direction. This is clearly relying on expectations to sustain housing prices, and such a distorted relationship is also very fragile.

The report also mentions the category of affordable housing, which is subsidized housing provided by the state to meet the needs of low- and middle-income urban households. However, China Household Finance Survey data show that affordable housing suffers from serious resource waste and "mismatch" phenomena, with a vacancy rate as high as 23.3%, second only to that of commercial housing. The data also show that the 25% of households with the highest total annual household income have the highest proportion of affordable housing, at 3.2%, nearly 1 percentage point higher than low- and middle-income households. Furthermore, we found that 27.5% of the affordable housing owned by the top 25% income households is vacant, while for the bottom 25% income households this proportion is only 17.1%.