The cost of economic development in China – both in monetary terms and in externalities – is unparalleled. The housing sector demonstrates not only the vast infrastructure development the Chinese government is driving, but also the human and environmental costs associated with the scale of development. At the same time, the Chinese government is entertaining pragmatic reforms that could open the market for energy-efficient housing across China.
The Chinese real estate industry is anticipated to continue new construction at a rate of nearly 1 billion square feet every year until 2020, according to the Pike Research Global Building Stock Database. The land for such infrastructure is the primary source of revenue for local governments, generated through one-time sales to property developers. As a result, local governments have been transferring land at unimaginable rates to generate operating revenues, while burgeoning urban areas are left with a glut of energy-intense housing stock, constructed on the cheap.
The impacts on the Chinese housing market – which has been booming since reforms in the 1990s permitted private homeownership – are well known; most analysts are holding their breath for the housing bubble in China to burst. The solution to the ills of the housing industry in China might just be energy efficiency, of a sort.
The Chinese government has been trialing energy and environmental tariffs, designed to raise the cost of carbon-intense commodities to encourage energy efficiency, in parts of the country. The measures may be nationalized in the future. These taxes could provide relief to both the housing market and ameliorate the negative externalities imposed on Chinese citizens and the environment by overheated development. Such a policy addresses what may be the root cause of the housing bubble: local governments could rely on taxes for operating revenues, rather than continuing one-time sales of land that encourage accelerated construction of sub-par housing.
So while Western countries like the United States are still debating whether energy efficiency mandates constitute “over-regulation,” the Chinese government is seriously pursuing policies to encourage energy efficiency – not because it’s good for the environment, but because it’s good economic policy.