The authors compare China’s property downturn with Japan’s 1990s collapse to show how housing busts can drag on growth even without a classic banking crisis. China’s real estate complex is nearly one third of demand, housing is about 70% of household wealth, and Japan’s adjustment took nearly a decade to fully unfold.
A Tale of Two Countries: The Real Estate Crises in 1990s Japan and Contemporary China
Kenneth Rogoff, Yuanchen Yang
Research
51 Pages
Key Takeaways
Real Estate Is Massive: In China, real estate plus related linkages and infrastructure account for nearly one third of aggregate demand, making the downturn unusually macro relevant.
Household Wealth Is Exposed: Housing makes up nearly 70% of household wealth in China, so falling home prices can hit consumption through a powerful negative wealth effect.
Japan Offers A Warning: Japan’s post bubble adjustment took nearly 10 years to fully unfold, suggesting real estate busts can create long periods of below trend growth.
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