Asia’s New Landless Peasants?

Landless people have long sparked instability in Asia. From the days of the Qin dynasty (3rd century B.C.), through the huge Taiping rebellion in the mid-19th century, to the successful Communist revolutions in China and Vietnam and a nearly successful insurrection in Malaysia during the mid-20th, the property-less have historically risen against those in power.

Today as East Asia grows more affluent, landlessness is again on the rise. Although peasants in many places remain both poor and restive, the real threat is in the region’s dynamic cities, where rapid increase in housing prices threatens to push hundreds of millions outside the property-buying market.

This boost in prices is due to the rapid economic and population growth in many Asian cities. Across China the price of housing per square meter more than doubled over the past decade, according to the National Statistical Bureau. Prices-compared-to-incomes in the diaspora hot beds of Singapore and Hong Kong are now, according to research from the consultancy group Demographia, the highest in the advanced world — at least 50% higher than New York, San Francisco, Toronto, Sydney or London.

There are some good market-based reasons for these high prices. Most major Asian cities are thriving economically and growing far more rapidly than their Western counterparts. Over the past decade, the population of Shanghai, China’s largest city, rose 35%, or by nearly 6 million, which is more than the population of any Western European city besides London, Paris and Essen-Dusseldorf. Beijing’s population rose by 6 million in the past 10 years to nearly 20 million. And Singapore’s far more affluent population jumped 20%, a rate exceeded in the advanced world only by Atlanta, Ga., among urban areas of more than 4 million.

The recent spike in prices, particularly in the more affluent cities, also stems from high liquidity, low interest rates and rising inflation, notes Cheong Koon Hean, CEO of Singapore’s Housing and Development Board. To these factors she adds what she calls “a herd mentality” as people rush to invest in property as a hedge against inflation.

The traditional Chinese obsession with property ownership exacerbates these factors. As  Nanjing-based blogger and social critic Lisa Gu writes, “Owning a property is the greatest life-goal for most Chinese citizens.”

In mainland China the rush to own is bolstered by the lack of a strong social safety net or popular trust in other investment vehicles, such as stock and bonds. ”China lacks good investment channels besides housing,” says Han Hui, senior partner in prominent Beijing real estate law firm. “People put money into real estate because they still don’t trust anything else.”

The appeal of home-ownership in China is particularly marked since it’s more of a land-use right, which in the case of residential property, expires after 70 years (40 years for commercial property). The lease begins to run out on the date that the real estate developer signs for the land, and not on the homeowner’s date of purchase.

Whatever its cause, this Asian form of irrational exuberance is clearly boosting inequality across the region’s cities.

This is becoming a key issue, particularly for the younger generation.  ”House price” ranked third on the list of the top 10 most popular phrases used by Chinese netizens, says Lisa Gu. Many young Chinese, she notes, are giving up on the ideal of owning a house before marriage and starting their lives together as renters. This is widely called “getting married naked.”

For young professionals this now might just prove a temporary annoyance, but it could evolve into something more bothersome as they age. Some might opt to avoid very expensive cities, such as Beijing or Shanghai, for up-and-coming smaller urban centers such as Chengdu, the provincial capital of agriculturally fecund Sichuan province. This city has a growing tech center but offers housing prices as much as one third those in China’s existing megacities. Although salaries are also lower, overall affordability remains much higher than in the established urban regions.

For the many millions of poorer Chinese, including the many migrants from the countryside, the housing crunch presents a more serious issue. Most have moved to the big cities, particularly in eastern China, for better opportunities and quality of life. Virtually all the net growth in Beijing and Shanghai, according to the most recent Chinese census, came not from registered residents but among migrants — those lacking hokou status. They constitute now over one third of the population in these megacities.

Such migrants include people of various incomes, but also a large impoverished population.  Some live in sub-standard conditions not often associated with the gleaming epicenters of Asian capitalism. Like residents of the slums of third-world cities, many are landless peasants, a group now estimated at 70 million or 80 million.

This problem of landless peasants is likely to grow as more land is set aside for urban and industrial development. Many will face difficulty finding a decent place to live even as more affluent Chinese snatch up multiple apartments for speculative investment. This has accelerated a worsening gap between rich and poor that is of major concern to the country’s Communist rulers.

Of course, no one suggests anything like a new peasant rebellion is in the offing. It is critical to recognize that, for all its imperfections, China’s astounding rise has lifted hundreds of millions of people out of the grip of unceasing poverty.

But unaddressed, the property crisis could well slow east Asian capitalism’s rapid ascent. High housing prices may already be contributing to depressed birthrates — even in places where the “one child” policy does not apply, such as Singapore, Taiwan and South Korea.

Such long-term problems are overshadowed by more immediate concerns. Fallout about cascading house prices led the Chinese central government earlier this year imposed new restrictions aimed at slowing rampant speculation — such as requiring 60% payments for second homes and restricting the purchases of additional homes.

The interior city of Chongqing has taken even more drastic steps. The hardline government there has embraced a distinctly uncapitalist response to the housing crisis: a massive program to increase the supply of rental as well as state-owned apartments that would be available to poorer residents, including those from the countryside. This contrasts with programs in Singapore, where 80% of the population live in the public housing, but some 95% own flats purchased from current owners or the Housing Development Board.

In China, the failure of the housing market to find places for the poor and working class could provide a rationale for expanding the state’s role in managing the economy. It certainly provides fuel for Chongqing’s active affirmation of what is seen as a revival of “red culture.”

Beyond such ideological implications, the housing crisis could threaten both the long-term social stability and economic growth of East Asia. Unless addressed, growing dissatisfaction among a large bloc of property-less citizens has the potential to become a politically destabilizing force and a brake against market-friendly liberalization. As East Asia remains the primary driver of the world’s economic engine, this could prove bad news not only for upwardly mobile Chinese but everyone else as well.

This piece originally appeared at Forbes.com.

Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University, and an adjunct fellow of the Legatum Institute in London. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in February, 2010.

Photo by Colin Manuel