Yes, the urbanization argument for this time it's different. There is bound to be massive urbanization in China. However what it ignores is the price of housing the newly urbanized can afford. Eventually it will have to settle to the economic value they add in the global marketplace. The price of housing at many of these new ghost cities is already close to the level of heavily developed western cities. So that leaves two possibilities
1. Every newly urbanized Chinese person moving from the country side will generate the economic potential of a Chicago or London person. So another 200 million investment bankers I suppose.
2. The property values of these ghost cities will dramatically deflate to measure up to the economic value added by the newly urbanized. Which means the value of these massive properties needs to written down by the banks.
Most people making the urbanization argument assume that option 1 will invariably occur. When in fact it is overwhelming likely that option 2 will occur looking at the massive number of people being urbanized and the massive deflationary pressure on every occupation. Urbanization per se will not cure the ghost cities problem. You have to look at the prices too.
The situation in Japan developed because the real estate got disconnected from its economic potential by a large margin. At the peak of the bubble in the mid-80’s the land value of just the imperial palace in Tokyo was worth more than the entire land value of California. A million times ratio!!. There is no amount of urbanization that could have solved this problem for you because the underlying economics did not make sense. In the end, I’m not sure the Japanese had a choice, maybe they could have let some banks fail earlier but the size of the bubble was so massive that immediate deflation would have triggered a Lehmann like moment for them.
In fact, if Option 2 is correct I’m pretty sure the Chinese leadership has no other option but to deflate the economic gap with a zombie like situation for decades. If you think they will let a Lehmann-like moment to happen and quickly reset prices back to the ‘right’ level you are mistaken. It would put the financial system at risk; the entire legitimacy of the CCP in danger and that would mean blood on the streets. They will keep shutting down the smaller non-state banks and keep rolling the loans of the bigger state banks and gradually write off the debt over several years. There is definitely no shock therapy of short-term pain that makes sense.
Where are you getting your information on the price of housing in China? Looking up some statistics on line I found an average of $1,742/m in China versus $15,284/m in the US. It might be that there are some massively overpriced developments, but they don't seem to be moving aggregate prices much so they can't be that big a deal on an economy-wide basis.
But in the end prices are simply an abstraction over the physical economy. China has an awful lot of families crammed into a single room, so there's clearly a reasonable case for building lots more housing. Like all abstractions they can screw things up and deflation can certainly cause problems, but not when it's much smaller than growth and Chinese inflation is right now comfortably over 4%.
1. Just doing a back of the envelope calculation will show your $15K per sq-m means that a tiny house the size of a small apartment (~ 100 sq-m/ 1000 sq-ft) is going to cost $1.5 Million. The average house in the US is over 200 sq-m (~2000 sq-feet) [1]. You are trying to tell us that an average house in the US costs over 3 million USD? Sorry, that makes zero sense. That $15K number is what the top 0.1% pays in Manhattan overlooking central park.
2. Since you gave a China average, for a realistic comparison lets look the medians in various cities [2]. Chicago median houses are at $1700 per sq-m. Chicago is probably in the top 25% of cities in the US from price of real estate and it is as expensive as average of China across all the cities. BTW, if you did the ranking of various cities in China like the guys in [2] have done you will end up with a list similar if not more expensive (Shanghai, Beijing, HK at top with prices much higher than the $1700 per sq-m you have listed). If we did the same averaging across the US pretty sure the average house price will drop much below $1700 per sq-m.
3. The US GDP per capita is nine times China on a nominal basis and at least 6 times on Purchasing price parity basis. So if the house prices in China are similar or more than the ones in the US how will the Chinese be able to pay for these houses. People in the US are barely able to make their payments. Even accounting for the fact that houses in China are smaller, they are definitely not 6-9 times smaller.
4. Where do you think the wealthy and elite Chinese are buying properties? Hint: not china.
As to your second point, I believe I answered that question. It is not a matter of what someone needs, it is a question of being able to afford a house at a given price.
1. Every newly urbanized Chinese person moving from the country side will generate the economic potential of a Chicago or London person. So another 200 million investment bankers I suppose.
2. The property values of these ghost cities will dramatically deflate to measure up to the economic value added by the newly urbanized. Which means the value of these massive properties needs to written down by the banks.
Most people making the urbanization argument assume that option 1 will invariably occur. When in fact it is overwhelming likely that option 2 will occur looking at the massive number of people being urbanized and the massive deflationary pressure on every occupation. Urbanization per se will not cure the ghost cities problem. You have to look at the prices too.