Chart of the Week: China’s perceived housing shortage

Over the years, Fathom Consulting has created a wealth of proprietary indicators, many of which originate from bespoke consultancy projects and provide unique insight into an economy. Some of those, such as the measures captured in the chart below, are available on Refinitiv’s Datastream Chartbook, under ‘06. Fathom’s Proprietary Indices’.

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The amount of floor space currently ‘under construction’ in China looms at 6.7 billion square metres and rising. That is more than enough to supply a house for every person in the UK, with plenty to spare. This vast quantity is a consequence of Chinese policy, which intentionally lengthens the building phase of a project so that the amount of housing under construction can keep rising (a useful policy tool to boost the economy when growth slows), without flooding the market and driving down prices.

By limiting the supply of ‘completed’ floor space, authorities keep the stock of available housing short of the quantity sold in a given year, creating a perceived shortage and reducing the time taken to sell ‘completed’ housing (the blue line in the chart) to below a year. At just six months, this is the quickest rate of clearance since our series began and marks a change in strategy from the ten-year period to 2016, when completions by and large equalled sales, suggesting that policymakers are intentionally targeting higher prices.

The true degree of slack in China’s housing market is highlighted by the orange line in our chart —there is no structural shortage of supply: far from it.

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