November 10, 2025 • 47 mins
Land is a weird asset. We need it to be affordable because everyone needs somewhere to live. But for many people, real estate is also their biggest store of wealth — a kind of national piggybank that fuels both personal fortunes and broader economies. Nowhere is that tension sharper than in China, where housing affordability remains a major challenge even as real estate has been a huge driver of wealth for households and companies alike. China's policymakers have now spent years trying to let the air out of China’s property bubble — without causing it to burst completely. In this episode, we speak with Mike Bird, The Economist’s Wall Street editor and author of the new book, The Land Trap: A New History of the World’s Oldest Asset. We talk about how much of China's economic progress has been tied up in real estate, different models of land ownership around the world, and why this particular asset is unlike any other.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:18):
Hello and welcome to another episode of the Authoughts podcast.
I'm Tracy Alloway.
Speaker 3 (00:22):
And I'm Joe Whisenthal.
Speaker 2 (00:24):
Joe, we've talked before in reference to I think it
was the US real estate market. Yeah, there seems to
be this weird thing going on with housing where it
feels like policymakers or maybe people even are not sure
what exactly they want it to be. Right, Is it
supposed to be this social good, this affordable thing we
all can live somewhere that we can, you know, preferably
(00:47):
a place we want to live in, something that we
can afford. Or is it effectively a giant piggy bank, Yeah,
an investment vehicle, in which case we would expect prices
to always keep going up.
Speaker 3 (00:58):
Yeah, right.
Speaker 4 (00:59):
I mean my personal preference is for housing to be
very affordable, very briefly, and in that time that I
buy how to accumulate more hows and then it stops
being affordable.
Speaker 3 (01:10):
That's my I don't many people have different takes. I
just want a very brief period.
Speaker 5 (01:15):
Thing about it.
Speaker 4 (01:16):
Very important that in that brief period I don't lose
my job. It's very important that in that brief period,
my other investments don't go down. I just want a
very brief period of housing affordable.
Speaker 2 (01:24):
But this is another thing about housing, which is like,
historically it is one of the few ladders to big
yea for the masses. Right, We've all heard the stories
about artists and soho buying a loft correct for like
five hundred dollars and now it's worth ten millions, so
good for them.
Speaker 4 (01:42):
The other thing that's interesting about housing, particularly when it
comes to affordability, is that this seems to be a
truly global challenge. So people have lots of theories like, oh,
it's because they didn't allow zoning and San Francisco or whatever,
and it's like maybe, but like I think any question
about housing affordability has to wrestle fact that this is
a really global phenomenon, so it can't be some idiosyncratic thing.
(02:04):
It does seem as though places where housing is more
affordable do not have particularly dynamic economies. So it's like
I know that people are like, oh, look how cheap
Tokyo is. It's like a umb success story, but like
they had a massive bubble and it's been deflating ever since,
and it's not like Japan, is it like some cutting
edge of particularly any booming industries and its population. Japan's
(02:25):
still pretty nice. I'm sure it's very nice. I'm not
saying otherwise. It's just not clearly not where the action is.
I'd love to go to. Japan seems like one of
the nice places. And the other thing that's interesting about this,
which is that there are all kinds of ills that
sort of devil particularly the rich world these days, and
then we look at China's like, oh, they have it
all figured out. It seems like housing is a mess
(02:46):
in China too. One of these rare congratulate like sort
of like moments where we could shake hands with China's like, yeah,
we're dealing with a lot of.
Speaker 3 (02:52):
The same issues.
Speaker 2 (02:53):
Well, here's the thing. China is like the ultimate example
of that tension between investment, asset and social good, right
because even in China, as you point out, there are
affordability issues, and every once in a while you see
policymakers try to put limits on house prices in like
really expensive cities. But then when they start doing stuff
(03:13):
that actually pops housing crisis, everyone starts protesting, which is
kind of you know, a rare thing in China, so
that is the tension.
Speaker 4 (03:22):
I also find real estate speculation in China to be
kind of I thought there were communists, and I mean
that on ironically, like, where did communists get the idea
of real estate?
Speaker 2 (03:31):
No, well, this is another thing because the social net
starts going away in like the nineteen nineties, and so
people have to do something with their money to have
retirement income to.
Speaker 4 (03:41):
I guess the houses in the old days used to
like be owned by the companies. There more dormitories, and
then when that started to split apart, I don't know.
Speaker 3 (03:47):
Maybe our guest knows more.
Speaker 2 (03:49):
Yeah, we do have the perfect guests, the perfect guest. Yes,
we are going to be speaking with Mike Byrd. He is,
of course, the Wall Street editor over at The Economist
and the author of the new book all about this
called The Land Trap, a New History of the World's
Oldest Asset. So welcome to the show.
Speaker 5 (04:04):
Mike, Thank you very much for having me. Great to
be here.
Speaker 3 (04:07):
I love my We both love my, so we're excited.
Speaker 2 (04:09):
Also, someone who spent some time in Asia when I
was there in Hong Kong as well, so knows the
sort of global history of land, and I was reading
your book and you go all the way back to
like Babylon or Samaria, so very impressive. So why did
you decide to look at land?
Speaker 5 (04:26):
It's a great question. I guess it started. I started
my career in London, and there's a huge thing in
London about housing as there is here, you know, people's
lack of ability to afford it. I think it's even
even worse than the UK than the US, because you know,
the culture of equity investing in all sorts of other
things is so much weaker. But I guess I really
got into it when I moved to Hong Kong, because
(04:48):
Hong Kong felt like London on steroids. The housing was
even more expensive. It was part of you know, I
moved in twenty eighteen. You there, Tracy, it was like
the extraordinary bull run, like the absolute peak the post
two thousand and eight surge in Hong Kong. And learning
about how land was really expensive but also the government
owned all the land and leased the land out made
(05:10):
money from the land. I found it very confusing and
it helped me to sort of dig into things, and
I think it helped me to like start thinking about
this as like a framework of how land works at
different places and how you can use it and abuse
it and whatever. And yeah, Hong Kong was a great
place to think about that because it's such a example
story of how bad things can get.
Speaker 3 (05:31):
So if you buy property in Hong Kong, what exactly
are you buying?
Speaker 5 (05:34):
You are buying like you're buying an apartment, right, but
you don't own the land. So if you say you're
a real estate developer, right, you buy a land lease
from the government, like a seventy five year, ninety nine
year land lease. They've clipped back and extended the terms
of the lease over time. But yeah, that's what you're buying.
You're buying the right to use it for a certain
amount of time.
Speaker 4 (05:53):
Does every just go away like other examples, like you
know what, seventy five years is up?
Speaker 3 (05:57):
Not your land?
Speaker 5 (05:58):
This is a big problem. This is a big problem
them and in these places, in places like Hong Kong
and Singapore, there is the difficulty of when lots of
the land starts to roll over, when lots of the
leases start to get at the end, the question of
whether you just bow to political pressure and just give
it to people, right, just let people keep it, or
whether you kick them off and start again, whether you
knock something down and rebuild. It's a big difficult issue.
Speaker 2 (06:20):
Yeah, Mozambique is the other country I know that does this,
which is kind of funny. Also communist history there. Anyway,
what role does housing actually play in the Chinese economy?
Speaker 5 (06:31):
So, I think the best part of living in Hong
Kong was learning how this relates to Hong Kong. Right,
So put in very simple terms the nineteen eighties, Gemin
the Mau is dead dung shopping, consolidating power, and you're
in a strange position where you have to start or
(06:51):
dounge once to start bringing in market forces into the economy.
But it's pretty dangerous. He's got a lot of political opponents.
You've got to step pretty slowly. And housing is one
of the areas it's most difficult. China's housing at the
time is pretty ramshackle and terrible. It's attached, as Joe
suggested at the beginning, to like the industrial base. Your
employer houses you on a farm or next to a
(07:14):
factory or wherever it is. But what China needs is urban,
modern residential housing. So Jao Xiang, who's the premier of
China later on, and he's one of the sort of
peak reformers in Dung's China. He credits this to a
conversation with a Hong Kong real estate developer called Henry Fox,
(07:34):
who said, in a conversation with him, where Joao is
explaining the difficulty of oh, we don't have any money
and we can't get foreign investment in and Henry Fox said,
but if you have land, why don't you have money?
How can you not have money? And basically they started
adopting on a small scale, initially the Hong Kong system.
They started leasing out land to make money. First one
(07:54):
of these is in Shenzen in December nineteen eighty seven.
There's an auction. The Hong Kong government gives them the
avil to do the auction, the auction of for pretty
small piece of land. But this is a symbolic thing
because you know, it's a communist country and the Chinese
government owns all the land. They hadn't even at this
point changed the constitution to make this legal. They're sort
of experimenting just at the edge, and then slowly this
becomes the main financing model. It's a big tax change
(08:17):
in the middle of the nineteen nineties that shifts this,
but it's it's a really good way of making money,
especially if you're the government and you own all the land.
China owns that in the mainland for communist reasons, but
it's actually a handover to some degree from Hong Kong.
Speaker 3 (08:30):
Actually, can I back up a few decades? What's land reform?
Speaker 4 (08:34):
You always here the people debating economics like, Oh, they
instituted land reformer, this is really important.
Speaker 3 (08:39):
This is what else says? Oh no, actually, land reform
was not there. What is land reform?
Speaker 5 (08:43):
Yeah, I've got a chatter on this in the book,
and it was sort of towards the end of it
quite carefully worded to not upset the people that feel
very strongly about land reform.
Speaker 4 (08:51):
Land reform things you don't talk about on Twitter. Yeah, yeah,
el asterisk and d reform. Absolutely, the bots don't attack you.
Speaker 5 (08:58):
The land reform is mostly middle of the twentieth century phenomenon,
and it's basically there was a lot of economic thinking
at the time. It was a guy called Wolf Ladashinski
who was a US Department of Agriculture employee. He was
an economist and he was an obsessive about land reform,
which essentially is redistributing really concentrated ownership of land to
(09:20):
larger numbers of people, especially in the developing rural world.
We're not talking about like, you know, cities or anything here.
And he went into Japan after World War Two, a
bunch of other reformers basically forced the Japanese government at
the time to pass a land reform bill which redistributed
an enormous amount of Japan's agricultural land. This happens in
(09:42):
Taiwan as well, it happens in South Korea, and there's
a huge amount of attempt to do it elsewhere, to
varying degrees across Asia in other parts of the world. Basically,
it's by far the most successful in those three original countries.
They try it in India, it doesn't work. They try
it in Vietnam at South Vietnam, it doesn't really work.
You know. I think one of the.
Speaker 4 (10:01):
Most impressing recurring themes on this podcast is the number
of times there is some like sort of very successful
project in industrialization or economic development, and then at the
end there's disasters. But it's only ever worked in three
like East Asian countries, and we have no evidence that
any of this works anywhere else.
Speaker 3 (10:19):
Here's the problem.
Speaker 2 (10:20):
Now you have a solution that you cannot use. Yeah, okay,
Well the other thing about land in China, and again
we're sort of fast forwarding back to the nineties, and
we should talk about the hukou systems as well later on.
But land has this really unique position I guess culturally,
socially and financially for Chinese people. Right, Like, everyone basically
(10:43):
decides they want to be a landlord, they want to
own an apartment, even if it's not built. You see
the ads in like newspapers, flyers, things like that in
a way that you don't necessarily see them for stocks
or bombs.
Speaker 5 (10:58):
Right Totally. I think there's a big cultural thing there.
I'm never too sure whether I'm like a culture is
downstream of policy or policy is downstream of culture guard
but it clearly is a big cultural impulse there, whatever
it's driven by. I remember when I lived in Hong Kong,
obviously not mainland China, but used to get adverts pushed
through your door and they'd be like invest in the
(11:18):
northern English riviera, right, there's housing in Leeds in Bradford
to be bought as investment properties. This is a big thing.
You didn't get those in Leeds and Bradford, right, if
you learn in the UK, you don't get those adverts.
So yeah, it's a big cultural thing. It's also a
big thing in the mainland, I think because of financial repression.
Basically you can't invest long term in the equity market
(11:39):
in China. Right, It's a sideways game. It's a terrible
way of compounding. Wealth. Bank accounts in general in China
for a very long period of its modern history had
like near a real negative returns because of financial repression.
So the question is if you're saving a lot of money,
where do you put it? And it's only really been
one answer. It's been a completely rational thing for China.
(12:00):
These households to do that, you know, extremely high saving
households buying property after property, a lot of them left vacant.
One of the things I say in the book is
that China has the symptoms of both a housing shortage
and a housing glove. Right, it managed to get the
worst of both worlds.
Speaker 2 (12:16):
Joe, you know what I call this what China's great
ball of money. Yeah, within the country, from asset class
to asset class.
Speaker 4 (12:40):
So, Okay, the stock market hasn't done well for a
very long time, raids on the savings are very low.
Speaker 3 (12:46):
How did like Chinese.
Speaker 4 (12:48):
Leaders feel about those emergence of a very speculative, high growth,
high return at least during the good old days, Yeah,
before a few years ago, About the emergence of this industry,
About this emergence of this sort of thing that's crucial
for a living and also becoming a major respeculative of vehicle.
Speaker 5 (13:08):
Houses are for living, not for speculations. Yes, say yeah,
I mean I should say. It's an incredibly useful way
of building out a city. Okay, this tool is like
super powerful if you're just starting out and no one
wants to invest. It's a really good way of pairing
real estate development with infrastructure. You can pay for a
lot of things. You can do it sort of expanding
very very rapidly.
Speaker 2 (13:27):
Plus you boost other sectors totally, construction, manufacturing.
Speaker 5 (13:30):
Employment, build out. Right, you don't know the industry, Yeah,
you don't have to do that much administration. It's fairly
easy to do this stuff, right, So there's lots of
advantages to it. I think people start to see the
problems even at the level of the central Chinese government
in these sort of early twenty tens, right, and you
get this series of like whack them all attempts to
(13:51):
get the big ball of money, the big ball of
credit out of the system. So the first thing you
see is the Chinese leadership saying, okay, banks limits on
real estate lending to developer, right, which is what pushes
them into the international bond markets where most of the
Chinese property developers fund themselves. Then you see the limits
on borrowing from the bond market, which sort of come
(14:11):
in and out during the twenty tens, and eventually it's
sort of seriously limited in twenty twenty, twenty twenty one.
But even then you see Chinese developers trying to essentially
borrow through pre sales from ordinary Chinese households, right, which
is like, you give me all the money to build
your house up front, I promise I'll get round for it,
(14:32):
you know, not stating actually, I've got twenty other projects
that I've got to build with your money first. There's
no escrosystem here. So yeah, you do see the Chinese
government sort of waking up to the problems, but it's
like in any other country you know, it doesn't have
same sort of Western democratic politics. But how do you
get off the train while it's moving?
Speaker 3 (14:50):
Yeah?
Speaker 5 (14:51):
Right, And they've tried with the three Red lines and
the campaign against the real estate development sector in the
last five years, and it hasn't gone very well.
Speaker 3 (14:59):
You know something I'm wondering about.
Speaker 4 (15:00):
You always hear about the CCP trying to learn the
lessons of the collapse of the Soviet Union, and they
don't want to have that fan So they're very obsessed
with this question of what brought the Soviet Union down.
Do they spend much time looking at the collapse of
the Japanese real estate bubble and the effect that Dad
had on Japan as an industrial dynamo.
Speaker 5 (15:22):
It's a great question. I'm not in direct touch on
a day to day basis. My understanding was that they
did that this was a preoccupation of the Chinese leadership.
I used to hear it a lot from people close
to economic and financial policy making that this was a
serious consideration and it was why they didn't want to
pop the bubble, which is essentially what the Japanese government
(15:42):
and the Bank of Japan did at the very end
of the nineteen eighties early nineteen nineties, they seem to
have done that anyway. I mean, it is a fascinating thing.
There's always this discussion of, you know, on an autocratic
regime can think in really long term, you know, they
think in decades and centuries. But in this case, you know,
there was a land final model that Chines's local governments had,
which has been pulled out from under them. There was
(16:04):
an asset class that Chinese households could invest in, which
has been pulled out from under them. The government hasn't
replaced those two things with anything particularly good.
Speaker 2 (16:12):
We certainly know that they look at it now, right
because we had Richard Ku on the broadcast a couple
of times, and we know that deflationary spiral caused by
real estate collapse is kind of a topic DuJour over there.
Talk more about the three red lines, because this is
something I remember. They came out when we were both
in Hong Kong, and you could see why policy makers
(16:34):
were doing it. And to some extent, you know, okay,
house prices came down and there's less new builds and
things like that nowadays, but they also seem to kind
of flub them, right.
Speaker 5 (16:44):
Yeah, totally so the three Red lines were basically the
Chinese government identifies the real estate developers as the tool
through which they're going to cool the housing market down,
and they come out with the three red lines, which
are three different metrics of debt to cash and other
sort of debt metrics, and they basically say, if you
violate one or two of these, you can maybe keep
(17:07):
borrowing only to refinance old debt. If you're green on
all of the three red lines, you're fine. Right, if
your metrics are okay, keep borrowing, go for it. But
none of them are at this point. And if you
have three red scores on the red lines, basically, if
you're violating all of these, no borrowing even to refinance. Right,
You've got to pay down debt. Now, these companies are
(17:28):
some of the most insanely structured financial vehicles in history. Right.
They can only expand through extremely rapid debt driven growth. Right.
The model is such. You know, if you're Everground and
you're paying like a fifteen percent interest on your borrowing,
you've got to keep borrowing to expand. Right. It's not
a good idea, but you've got nothing else.
Speaker 2 (17:48):
So funny thing about Evergrand also is the diversification into
a bunch of other things. I remember again in Hong
Kong asking someone like, we should do a graphic of
China evergrands all there are different businesses, right because it
would be really interesting, And it took like three weeks
to make and when it came out, it was almost
unreadable because there were just so many of them, like
splayed out.
Speaker 3 (18:09):
You know, it sounds like we work.
Speaker 4 (18:11):
I mean that was a company that had diversified into
literal wave wavepool.
Speaker 3 (18:15):
Business and about one hundred other things.
Speaker 4 (18:18):
So also just an insanely complicated, leveraged organization. There was
a multi billion dollar unicorn now is where the bag Offridos.
Speaker 5 (18:27):
We mocked when they bought Friday Futures, the US EV company,
and we all mocked right everground saying honestly, now, I'm
like maybe if they the three red lines hadn't come in,
we'd be like soon around me.
Speaker 4 (18:41):
This carsonization of Chinese companies were on a long enough timeline.
Speaker 3 (18:46):
They're all becoming EV companies.
Speaker 4 (18:48):
Like there was a great article in Bloomberg earlier this
week about multiple vacuum cleaner companies in China that are
now releasing EV.
Speaker 3 (18:56):
So I guess I'll make sense.
Speaker 5 (18:57):
That their argument was always like, you know, where do
you put your car in the car park in the
estate that you live in? Who built that? Yeah, they
believed in it, But basically, yeah, they bring the three
red lines in the real estate development sector begins contracting
very rapidly. The most in debted companies get into trouble
almost immediately, but also some of the companies that people
(19:18):
thought were pretty safe, that borrowed at pretty low rates
are getting into trouble fairly quickly as well. Your sort
of country gardens China, Vanka, like, they're all getting into
trouble quite quickly. The way I think of it is
that basically the Chinese government attacked the sector that had
grown up to intermediate between the households and the local governments,
but they didn't change anything about the incentives to the
(19:38):
households of the local governments. The households still need to invest,
the local governments still need money from somewhere, and these
companies were just making that arrangement work for those two sides, see,
and destroying them does nothing really, you know, it causes
a lot of distress, Construction activity drops, lots of people
aren't going to get the homes they invested in through
(19:59):
the pre sale system, But it doesn't really address the
actual core driving forces.
Speaker 4 (20:03):
Talk a little bit more about the local government finances
and what it is about land that is particularly importantly
because there are other ways that local governments could theoretically
taxes on there.
Speaker 2 (20:16):
I was never sure what the driving if the driving
force was at the sort of Beijing national level, or
if it was the local governments that you know, first
started doing this because they're like, Oh, here's a way
to make money and develop and look good in Beijing's eyes,
and then Beijing just kind of went with it.
Speaker 5 (20:32):
So I would trace it back largely too. As I
said before, you know, people started experimenting with land auctions
land sales from nineteen eighty seven. It starts to get
more popular in the early nineties, but it's nineteen ninety
four when they change the tax and spending system, the
distribution of spending and tax responsibilities between the Chinese central
(20:54):
and local governments that really sort of hammers it home.
So traditionally China People's Republic like decentralized in terms of
revenue and spending obligations. Local governments did most of the
tax raising. They did most of the spending. The central
government told them there were certain things they had to do,
but they did it all fairly independently. And then nineteen
ninety four they switched the system and the central government says,
(21:16):
you could raise the red but we'll take most of that, right, yeah,
will tell you how much you get back of that.
It became a much more centralized system, and overnight the
local governments were left with huge spending responsibilities those don't change,
but only making sort of sixty or seventy percent of
the money that they needed to fund them. They stumbled
through the nineteen nineties trying to find ways of doing this.
(21:36):
There's lots of sort of flagrantly illegal administrative fees and
fines placed on things. This actually gets them in trouble
because it's very politically sensitive. You know, there's rural Chinese
residents being absolutely rinsed for anything the local governments can
get their hands on. And they land on land. Basically,
they see the land auctions, which are off balance sheet revenues.
(21:58):
They do not count for the purpose of being remitted
to Beijing in the same way that normal tax revenues do,
and they say, right, okay, that's it. That's what we'll do.
That's so why I will raise money. And you see
the proportion of income rise and rise and rise very
aggressively through the late nineteen nineties from a pretty sort
of residual amount that was useful for it was useful
for land allocation, it wasn't mostly useful the beginning for
(22:20):
raising money, and it becomes the main fundraising tool.
Speaker 2 (22:22):
And then they're in the trap. Yeah, the land trap.
Has any country ever successfully gotten out of this type
of situation?
Speaker 5 (22:30):
It depends what you mean my success.
Speaker 2 (22:31):
Yeah, without a massive collapse or without a period of
very long stagnation, which seems to be what China is
in now.
Speaker 5 (22:39):
I would say basically no. And funnily enough, I actually
think one of the best cases for relatively rapid like
return to normalcy is after two thousand and eight in
the US specifically. You can tell how few cases there
are that I'm using the Great Recession.
Speaker 2 (22:58):
This is the best one, as like.
Speaker 5 (22:59):
This might be the best outcome for a number of
different reasons. But yeah, that might be the best outcome.
There are places that didn't get into the trap in
the first place.
Speaker 2 (23:05):
Right that that seems to be the ideal. Probably.
Speaker 4 (23:07):
I've obviously never been to mainland China. All of the
China news that I consume is on propaganda that makes
it onto my Instagram reels that shows all these incredible
futuristic cities and robots doing everything. One hundred percent of
my China news consumption makes it look like paradise on
Earth again, because I only consume propaganda.
Speaker 3 (23:30):
Is it actually stagnating?
Speaker 5 (23:32):
I will say I can't claim to have been to
mainland China for years now. I think it is. I
think the long term threat from undermining what was really
right at the middle of the Chinese development model for
a very long time and not replacing it with anything
has been really dangerous. You've seen this effort as investment
in the real estate sector has dropped and dropped from
(23:54):
drop to drive it into the manufacturing sector. But the
reality is that the manufacturing sector, as big as it
is in China isn't big enough to productively absorb all.
Speaker 4 (24:02):
This isn't the question like, can the Chinese manufacturing sector
just be so dominant that it just offsets the decline
of real estate?
Speaker 3 (24:12):
And your analysis is no.
Speaker 5 (24:14):
My analysis is no, Chinese economy is too big. I
would say, and too big means that the domestic real
estate market is absolutely gargantian. Right. The thing you're trying
to replace is enormous, and there's only so many buyers
for your products in the rest of the world. And
this is why you see I think the anti evolution campaign.
Speaker 2 (24:32):
Trying to get consumption up exactly.
Speaker 5 (24:34):
The pressure against it, because the sort of consequences, the
negative consequence is already starting to display themselves. And we're
really like three years into this really big push to
drive the investment into manufacturing, and it's showing those problems
in a way that it's a real estate much longer.
I don't think it can be a like for like replacement.
Speaker 2 (24:52):
Wait, talk more about real estate and productivity, because this
is something that I didn't really internalize until I read
the chapter in your book China chapter.
Speaker 5 (25:00):
Yes, so there is a lot of really really interesting
research about real estate in China and what it's done
to productivity. So if you think about it from the
perspective of we're going to get into a banking argument
that's already got that's going to get me in trouble
as well in terms of like the you know, the
amount of credit you can have. But if you think
there's any constraint on the amount of credit, which obviously
(25:21):
in China there is, there are actual like targets and limits.
It's still a fairly state oriented system in lots of
different ways. Then the resource is going to one part
of the economy means they aren't going to another part
of the economy. And in China's case, this means employment,
it means material investment, it means you know, steel and
concrete and copper and everything else. The real estate sector
(25:41):
in general, in a long run, I think has pretty
low productivity. Right. You can build constructively in places where
you know housing's really in demand, but there's only so
much you can get out of it.
Speaker 2 (25:53):
It's not making new stuff.
Speaker 5 (25:55):
No, totally, and certainly in China. What has happened and
what was certainly happening during the run up to the
the three Red Lines policy is you saw a lot
of productive, entrepreneurial and innovative activity instead going into real estate.
We talk about Chinese real estate developers having lots of arms.
Every big Chinese company was trying to run a real
estate company on the side during the twenty tens, right,
(26:16):
because there's so much money to be made, why not
do that as well? And there's really interesting research from
yush at the IMF talking about how individual Chinese entrepreneurs
would go into real estate over time because there's so
much money to be made and it is productivity destroying,
especially if I think you're in a state oriented financial
system where you're not probably going to see like a
(26:37):
two thousand and eight style crash. This is where you
see the consequences come through, you know.
Speaker 4 (26:58):
I Wou was thinking about that the Sopranos where Aj
tells us Sunday's like by real estate, they're not making
any more of it, whether China elsewhere, that's not really true,
Like a artificial islands exist b again in.
Speaker 2 (27:11):
The islands literally a drop in the ocean.
Speaker 3 (27:15):
You guys start somewhere. You guys start somewhere.
Speaker 4 (27:17):
But more importantly, again if the my mainlining consumption of
Chinese propaganda, I always see these things like this used
to be a desert. Now it's this beautiful like farmable
land and there's greenery here. Like whether it's China or elsewhere,
or the history of land like, it's not really that fixed.
They always find new ways to sort of create habitable land.
(27:38):
That's that's what it used to be human.
Speaker 5 (27:40):
I think there's two things. That one is like actual reclamation,
which is like we've probably added like can you.
Speaker 4 (27:47):
But by the way, I think that's the most powerful
word in English language, reclamation, because it's like it means
turning watery land into land. Yeah, but the implication is
like we're reclaiming it. We are reclaiming what used to be.
Are think there's such a powerful world, right, It's very.
Speaker 5 (28:01):
Like Francis Bacon. It's very like, you know, man's dominions.
Speaker 4 (28:05):
Like this land that we ken't live in was only
we were temporarily embarrassed.
Speaker 5 (28:11):
It's always good to do land recommention where you can,
but there's really not very much of it, Okay. I
think that the more interesting way that you can create
more land in the way that I think of it
is more like if you think of land as a
like a commutable, reachable area, then we've always at treaded
more land. Right, It's like the Bronx wasn't useful land
one hundred and fifty years ago, and now it's extraordinarily
(28:33):
expensive land because you can get into the productive center
of New York. And that's actually one thing that loosens
the sort of trap conditions around land over time. You
see this in the US, like during the early twentieth century,
you saw New York, for example, loosen a lot of
its problems with housing in real estate because suddenly it
was like the outer boroughs you could populate full of
(28:55):
people and they could work in Manhattan still and that
was fine. And that was a bit like multiple New
York's worths of land to attach to it.
Speaker 2 (29:03):
Oh, here's where we can talk about the hook house system,
because that ended up being precisely a limiting force on
this dynamic.
Speaker 3 (29:09):
Yeah.
Speaker 5 (29:09):
Absolutely, And I think that that feeds into the whole
question of the Chinese welfare system and the fact that
Chinese households are driven to invest so aggressively in land. Right,
if your welfare is linked completely to the place where
you grew up, and you become a migrant worker and
you go and work somewhere else, then you're going to
(29:32):
want to invest very aggressively, either in real estate where
you can in the place you moved to, or in
real estate at home. It's essentially like a sort of
savings technique more than it is. Again in China, it
feels like the land use and the land as an
asset are more divorced from one another than anywhere else.
You can see this in the rental yield data right,
rental yields and rents in China aren't expensive, even in
(29:53):
you know, the really popular cities, they're not expensive at all.
So that that sort of gap and the hook how
system really feeds into this by essentially it's another force
driving Chinese households to invest more and more and more.
Speaker 4 (30:07):
Sorry, I don't totally understand, explain a lot of what
is the essence of the system, what are the constraints
are played, and then clarify like how it how the
incentives therefore are to enquire.
Speaker 5 (30:17):
But the essence of the system basically is that you
have a welfare system that is linked to the place
where you're registered as a household. It's usually the place
where you grew up, so you're able to get all
sorts of different ordinary welfare state things based there only.
And if you move for work it doesn't matter, right,
(30:38):
So you're not eligible if you're a migrant worker to
all of those things in Shanghai, for example, And these
things are really really so you can move there, You
can move there.
Speaker 3 (30:48):
But you really be a sort of literally a second classes.
Speaker 5 (30:52):
Yeah. Absolutely. So this is without huge amounts of external migration,
or with almost no external migration. Really, China has been
able to create system that lots of other parts of
the world have with very poorly paid migrant workers turning
up who don't have many rights in the place they'm
moving to. These are the people doing the construction jobs
that people doing a lot of low paid work.
Speaker 2 (31:11):
I don't know if this still happens, but I remember
in the two thousands, if you early two thousands, if
you walked around Beijing at night and looked in the
windows of some of the restaurants, the waiters would be
sleeping on the table because most of them came in
from the farmland, didn't have access to housing. So kind
of crazy.
Speaker 5 (31:27):
Yeah. Yeah.
Speaker 4 (31:28):
People who are sort of more on the immigration restrictionist
end in the US will often say things like, you
know what, the US has actually fallen behind on productivity
because we have this endless supply of cheap labor with
diminished rights. Had we not had that, that would have
forced US firms to do more capital deepening, maybe invest
(31:49):
in robots, et cetera. It's interesting because we think of
China as a very advanced industrial nation, and yet your
description that makes me think that's story doesn't really hold
water totally.
Speaker 5 (32:01):
And I understand why people concentrate on that element of
the Chinese economy. It's like the most exciting, interesting bit,
and you don't need to downplay in any way the
advanced manufacturing and sort of hyper futuristic elements of it
to say that that doesn't represent the overwhelming share even
Chinese industry, right, which is relatively low productivity, relatively low return.
(32:22):
It's at scale, but it's not enormously like futuristic, and
certainly once you get out of the manufacturing industry, you
are going into the standard East Asian development model, where
the service industries productivity is absolutely awful, right, really really
poor service productivity. So yeah, I think it's a the
two things are true at once. Right. It's large and
(32:42):
it contains multitudes, but it's not most of the story
to me.
Speaker 2 (32:45):
Do you see any signs that Chinese people are starting to,
I guess move into other assets like equities, probably not bonds,
But we know that government has been trying to stimulate
the entire economy, and I think they've been pretty clear
they've been trying to lift various asset prices, not house. Well,
now they're doing housing as well. Actually, but do you
see any signs that people are starting to change their
(33:06):
minds on something like Chinese equities.
Speaker 5 (33:08):
I think to make the Chinese equity market really work,
you would have to make a series of deep political
decisions about the way China's run that I think they
probably won't make, which is basically things like Jack mal
when he got really slapped down right. Basically, you need
to allow that sort of behavior, right, You need to
(33:28):
allow the innovation. You need to allow the entrepreneurs to
sort of go nuts. You can't have all of these
restrictions around. We don't want the young people playing video games,
and we want it to be driven into this kind
of robotics and not that kind, and all of those
sort of limitations are going to I would say, prevent
that from happening. There's too much political activity that a
Chinese company has to do.
Speaker 4 (33:49):
What about just like the hyper competitiveness. I mean, people say, well,
there's hundreds of ev companies in China, most of them
are going to fail, and yet you read about launches.
I don't know, like this is one of those stories
that I really like because it feeds all my biases,
So therefore.
Speaker 3 (34:07):
I'm sort of very skeptical of it.
Speaker 4 (34:08):
But I've probably repeated it's like, oh, like China's stock
market hasn't done well because they're too good at capitalism,
because it's too competitive, because they really get it, they're
really competing has driven all this abundance and so forth, Like,
is there something to that that, Like, the reason Chinese
equities haven't done well is because with such intense competition,
with the provinces all having their normal champions, that none
(34:31):
can really sort of capture something that might reflect sort
of monopoly rents.
Speaker 5 (34:34):
I think there's definitely something to that in a way.
When I think about that, I would say, it's true
when you're subsidizing the competition, it's not true competition in general. Right,
It seems crazy to me to say, like, not bad
if everyone's getting like cheap inputs. There's lots of competition.
Speaker 4 (34:48):
But the provinces still do have a role in subsidizing,
either implicitly or directly in subsidizing their national champions. And
when she says, yeah that we want to make spark
plugs big priority for the next five years they all
go They still do that, right, They scramble to find
their local spark plus.
Speaker 5 (35:06):
And I think there's lots of like American examples and
examples elsewhere. And sector is where people said, oh, it's
too competitive, no one will ever achieve it. Uber is
a good example. People said this would never work. It
does work, right, So there is a scale that you
can build where I think you develop a value even
in a market with it's really competitive and really sort
of low entry costs. But you won't do that if
(35:28):
every other imagine a world with Uber but where every
other rideshare company was aggressively subsidized every time above a
certain market cap, then yeah, you wouldn't have Uber at
a certain market cap.
Speaker 2 (35:39):
I'm really curious because again, the book goes through it's
not just China. It goes through all sorts of land models.
But what was the most interesting one that you looked at.
Not only does it go across different ways that different
countries treat land across the world, it also goes across time,
like three thousand years worth of human history.
Speaker 5 (35:57):
Yeah, I should emphasize to anyone listening. I was really
interest and the China stuff, but it's not a not
a child. The two most interesting to me, one of
which because I live there and I think it's the
most unusual and fascinating real estate system in the world
is Singapore, which has defied in many ways a lot
of the limitations that other countries have seen. And one
(36:18):
of the first parts of the book, which is like
Colonial America, where there were all of these efforts to
turn land into money. Right, these colonists get to a
place where they have essentially to them, infinity land. It
just keeps going on and on. They don't know where
it stops. It seems to be relatively fertile and good
and more people turn up, but have shortages and cash
and labor and everything else. And there's all of these
(36:41):
efforts to turn land into money with public and private
land banking projects. I found all of that like absolutely fascinating.
It's not actually something I knew very well before starting
to research the book. Yeah, so Singapore and Colonial America.
Speaker 4 (36:53):
What is it about Singapore that makes it? I actually
I don't know why. I sort of assumed they did
the same ninety nine year they leason that this is
the most interesting thing. They start off with all the
inherited things that Hong Kong starts off with. Up until
the middle of the twentieth century, the cities have run
on very very similar lines. Hong Kong goes off in
one direction and Singapore goes off in another. And the
Singaporean direction is basically, how do you maximize home ownership permanently?
(37:18):
How do you have a sustainable model for making sure
people can still afford to come in. So what they
have is this bizarre public private system. I say bizarre,
you know, it's very impressive where the government owns most
of the city's land, not all of it like in
Hong Kong, but most of it, and they have the
Housing and Development Board that builds housing estates. They then
sell the units in the housing estates to Singaporean citizens.
(37:42):
You can only own one, you can't own multiple and
rent them out. There are restrictions on how long you
can hold them before but there's an internal market, but
you can only sell them to Singaporean systems and permanent residents.
The amount of building is done to make sure that
everyone can afford it. They've really divorced usage from speculations totally.
Speaker 5 (37:59):
They divorce users from speculation and a place that I
think most people think of as very capitalistic, free market,
low tax has basically decided this asset class land and
real estate, this is something different and we're doing Yeah,
we're doing a different thing with this. Were you know,
the normal forces simple. There's so much international money center
of like capital and trade flows is.
Speaker 4 (38:18):
Rich commercial reachs though in Singapore they do. You remember
this because when I was in Singapore, I saw the
ticker symbol on this out of a few buildings. It's
like you could invest in this but anyway, Yeah.
Speaker 5 (38:29):
But commercial state a little bit different. But the residential
and real estate and they've done this in again, they
decided land was different. They have a thing called the
Land Acquisition Act, which really allowed them to strip a
lot of people of their land extraordinarily low prices through
the sort of sixties, seventies, eighties, and it's allowed them
to do something very very different. I don't know whether
(38:50):
most countries can sustain the idea that capitalism works for
everything but not land, and which is just going to
be One Singaporean senior politician described it to me as piracy.
They did in the seventies and eighties. Pennies on the
dollar basically demanding people handover this land so it could
be housing for Singaporeans. But it has worked very well.
Speaker 2 (39:08):
Okay, so China probably cannot pursue the Singaporean model at
this point, right, But why can't they institute like a
stronger social safety net so that the burden of saving
for retirement, for health emergencies, things like that doesn't always
necessarily fall on the citizens and therefore they have to
(39:28):
invest in highly speculative assets.
Speaker 5 (39:31):
Yeah, they should, is the answer. There seems to be
huge political opposition to doing this at the top of
the Chinese Communist Party, and it's bizarre again because you
talk to someone like Richard Ku and it'll give you,
it'll explain why if you don't do this, this is
the consequence, right Japan is the consequence long term stagnation.
It's going to be really difficult. They should do all that,
and maybe they will be sort of drummed into it eventually,
(39:54):
because I think the alternative is both stagnation and lots
and lots of trade friction with the people you're exporting to,
as we've already seen.
Speaker 3 (40:04):
Right, because it's not just the US, is it.
Speaker 4 (40:06):
Everyone's sort of no one there got to be a
lot of countries that are not thrilled.
Speaker 5 (40:11):
No one's totally happy with it. It's a weird mix
because for some countries it's like, if you're not going
to make some of these items, right, If you're a
country that's simply not gonna make evs, then why should
you care about getting the really cheap evs. But everyone's
got something to be upset about. In Southeast Asia, it
was always steel when I was there. Everyone wants to
have their own local steel sector, and they don't like
the Chinese dumping of steel in Indonesia. They don't want
(40:34):
like cheap Chinese direct to consumer merchandise coming in because
it messes with their small and medium sized businesses. I
guess for most of these countries, the difficulty is do
you want to pick a fight with the Chinese government.
It's not an obvious question like it is in the US.
Speaker 4 (40:47):
I guess I just have one last question. And you know,
the sort of Singapore example is what reminded me like
land is weird, Like the idea that you could have
a capitalist system except for residential land.
Speaker 3 (41:03):
A lot of people actually kind of think that.
Speaker 4 (41:06):
You hear, what is the Georgists right? And they think
like no land is special and we need to have
these like special taxes on ownership.
Speaker 3 (41:15):
And yeah, we love free markets.
Speaker 4 (41:17):
But again, maybe because there's always so much land, they're
not making much more of it, et cetera. Maybe there
really is something to do. It's sort of unfair, Like
I get born in the year nineteen eighty and I
already a bunch of people already own the land around me,
which doesn't really seem fair. It's like I was just born,
where's my chance? Like we're never going to go to
the pure Singapore model, But are there things that we
(41:39):
could do with the tax system that would like sort
of further hammer home the idea that residential land is
for living.
Speaker 5 (41:48):
Yeah, I think there's dozens of different things you could do.
But I mean one of the big things is that
the legacy of Henry George and the politicians in municipal
America that really loved Henry George is that America has
relatively high property taxes. Anyway, you can do all sorts
of things with property taxes to lean more of the
value on the land rather than the structures. Right, Yeah,
lots of states, lots of cities have done this. I
(42:08):
think it's going to be increasingly important in the future
because what you're going to get is increasingly people inheriting
homes from their parents when you can't afford them. And
then that main store of wealth is about whether your
parents decided to buy in the right place at the
right time. I talked to a lot of seventy year
olds will be like, wow, I picked my two bedroom
flat in nineteen seventy three, and yes I bought it
(42:28):
for three and a half dollars, but it's mine. That's
going to be a lot less tenable I think when
it's handed down wealth. So yeah, there's loads and loads
of things. And Henry George is in the book. The
political consequences have George's and fell apart in there too.
Speaker 2 (42:42):
All right, Mike Bird, thank you so much for coming
on our thoughts and grabs on the book.
Speaker 5 (42:46):
Thank you very much for events Joe.
Speaker 2 (43:00):
That was really great and genuinely the book is great.
Speaker 3 (43:03):
Yeah.
Speaker 4 (43:04):
I love talking to Mike once again. I'm just like,
hasn't he been like on the internet as much as
we have?
Speaker 3 (43:09):
How do you? How did you write a book of
this time?
Speaker 4 (43:11):
I have no idea, don't understand how anyone writes a book,
especially a very serious book on a very big, meaty topic.
Speaker 2 (43:18):
But I just want tweeting constantly.
Speaker 3 (43:20):
Well tweeting. He tweets a lot. Speaking of propect, It's
like it would be one thing if you were never online.
He's online as much as I am.
Speaker 2 (43:26):
Okay, you know you asked that question about whether or
not Chinese cities are actually futuristic. Yeah, I have an
anecdote on this point. I think I might have said
it before, but China is the place where I went
to both the most impressive bathroom ever in like a
highly futuristic luxury shopping mall in Beijing, and also the
(43:48):
worst one ever in my entire life, which was a
rural It was basically a hole in the ground.
Speaker 5 (43:56):
Right, Yeah, terrible.
Speaker 3 (43:57):
China. It's a land of contradiction. Thank you.
Speaker 2 (44:01):
Thank you for highlighting the cliche.
Speaker 4 (44:03):
No, I thought like it. It always did seem very interesting.
It still does that. Like there's so much speculation that
happens in China, and I always found.
Speaker 3 (44:12):
That to be a little weird. I also just find.
Speaker 4 (44:15):
The idea of like buying a property, but it's actually
really you're not buying it early. Buying the property for
like seventy five years to be a little weird.
Speaker 2 (44:23):
But on the other hand, that kind of exists in
New York.
Speaker 4 (44:26):
Yeah, yeah, and in the US, like, look, we pay
property taxes and perpetuity, which means to some extent that
when you own something, you are paying a permanent rent
to use it, and if you stop paying that rent,
then you could theoretically lose it. So maybe it's less
weird than I thought it is. Actually we should do
more on Singapore specifically, like but also you know, like
(44:49):
I'm not sure to your point in the very beginning
whether people actually want the divorce between usage and speculation.
I just think that for several of the last decades
didn't have to choose. You got to live in and
he made.
Speaker 3 (45:01):
A lot of money.
Speaker 2 (45:02):
I think it's very hard to get off the train
once it's kind of rolling, right, And that's the problem
that we're seeing in China, and now they're trying to
walk this very fine tightrope where it's like, we don't
want to make everyone incredibly poor, but we also want
to depress housing and the importance of housing in our
economy in order to boost manufacturing and productivity.
Speaker 4 (45:22):
This is why, again my proposal affordable housing for one
year and then it goes back to being really expensive.
Speaker 2 (45:29):
All right, well you can suggest that, Joe, Yeah, we
go to Baja.
Speaker 3 (45:32):
I'll run on that. I'll run on that. I'll run
on that platform.
Speaker 5 (45:35):
All right. Shall we leave it there?
Speaker 2 (45:36):
Yeah, this has been another episode of the All Thoughts podcast.
I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 4 (45:42):
And I'm joll Wisenthal. You could have followed me at
the Stalwart.
Speaker 3 (45:45):
Follow our guest.
Speaker 4 (45:45):
Mike Byrd He's at Birdie Word and check out his
book The Land Trap, A New History of the World's
Oldest Asset class Follow our producers Carmen Rodriguez at Carmen Arman,
dash El Bennett at Dashbot and kel Brooks at kel Brooks.
From our odd Lags content, go to Bloomberg dot Com
slash odd Latch. We've the daily newsletter and you can
chat about all of these topics twenty four to seven
(46:07):
in our discord Discord dot gg slash odlines.
Speaker 2 (46:10):
And if you enjoy odd Thlots, if you like it
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And remember if you are a Bloomberg subscriber, you can
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Apple Podcasts and follow the instructions there. Thanks for listening.
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:18):
Hello and welcome to another episode of the Authoughts podcast.
I'm Tracy Alloway.
Speaker 3 (00:22):
And I'm Joe Whisenthal.
Speaker 2 (00:24):
Joe, we've talked before in reference to I think it
was the US real estate market. Yeah, there seems to
be this weird thing going on with housing where it
feels like policymakers or maybe people even are not sure
what exactly they want it to be. Right, Is it
supposed to be this social good, this affordable thing we
all can live somewhere that we can, you know, preferably
(00:47):
a place we want to live in, something that we
can afford. Or is it effectively a giant piggy bank, Yeah,
an investment vehicle, in which case we would expect prices
to always keep going up.
Speaker 3 (00:58):
Yeah, right.
Speaker 4 (00:59):
I mean my personal preference is for housing to be
very affordable, very briefly, and in that time that I
buy how to accumulate more hows and then it stops
being affordable.
Speaker 3 (01:10):
That's my I don't many people have different takes. I
just want a very brief period.
Speaker 5 (01:15):
Thing about it.
Speaker 4 (01:16):
Very important that in that brief period I don't lose
my job. It's very important that in that brief period,
my other investments don't go down. I just want a
very brief period of housing affordable.
Speaker 2 (01:24):
But this is another thing about housing, which is like,
historically it is one of the few ladders to big
yea for the masses. Right, We've all heard the stories
about artists and soho buying a loft correct for like
five hundred dollars and now it's worth ten millions, so
good for them.
Speaker 4 (01:42):
The other thing that's interesting about housing, particularly when it
comes to affordability, is that this seems to be a
truly global challenge. So people have lots of theories like, oh,
it's because they didn't allow zoning and San Francisco or whatever,
and it's like maybe, but like I think any question
about housing affordability has to wrestle fact that this is
a really global phenomenon, so it can't be some idiosyncratic thing.
(02:04):
It does seem as though places where housing is more
affordable do not have particularly dynamic economies. So it's like
I know that people are like, oh, look how cheap
Tokyo is. It's like a umb success story, but like
they had a massive bubble and it's been deflating ever since,
and it's not like Japan, is it like some cutting
edge of particularly any booming industries and its population. Japan's
(02:25):
still pretty nice. I'm sure it's very nice. I'm not
saying otherwise. It's just not clearly not where the action is.
I'd love to go to. Japan seems like one of
the nice places. And the other thing that's interesting about this,
which is that there are all kinds of ills that
sort of devil particularly the rich world these days, and
then we look at China's like, oh, they have it
all figured out. It seems like housing is a mess
(02:46):
in China too. One of these rare congratulate like sort
of like moments where we could shake hands with China's like, yeah,
we're dealing with a lot of.
Speaker 3 (02:52):
The same issues.
Speaker 2 (02:53):
Well, here's the thing. China is like the ultimate example
of that tension between investment, asset and social good, right
because even in China, as you point out, there are
affordability issues, and every once in a while you see
policymakers try to put limits on house prices in like
really expensive cities. But then when they start doing stuff
(03:13):
that actually pops housing crisis, everyone starts protesting, which is
kind of you know, a rare thing in China, so
that is the tension.
Speaker 4 (03:22):
I also find real estate speculation in China to be
kind of I thought there were communists, and I mean
that on ironically, like, where did communists get the idea
of real estate?
Speaker 2 (03:31):
No, well, this is another thing because the social net
starts going away in like the nineteen nineties, and so
people have to do something with their money to have
retirement income to.
Speaker 4 (03:41):
I guess the houses in the old days used to
like be owned by the companies. There more dormitories, and
then when that started to split apart, I don't know.
Speaker 3 (03:47):
Maybe our guest knows more.
Speaker 2 (03:49):
Yeah, we do have the perfect guests, the perfect guest. Yes,
we are going to be speaking with Mike Byrd. He is,
of course, the Wall Street editor over at The Economist
and the author of the new book all about this
called The Land Trap, a New History of the World's
Oldest Asset. So welcome to the show.
Speaker 5 (04:04):
Mike, Thank you very much for having me. Great to
be here.
Speaker 3 (04:07):
I love my We both love my, so we're excited.
Speaker 2 (04:09):
Also, someone who spent some time in Asia when I
was there in Hong Kong as well, so knows the
sort of global history of land, and I was reading
your book and you go all the way back to
like Babylon or Samaria, so very impressive. So why did
you decide to look at land?
Speaker 5 (04:26):
It's a great question. I guess it started. I started
my career in London, and there's a huge thing in
London about housing as there is here, you know, people's
lack of ability to afford it. I think it's even
even worse than the UK than the US, because you know,
the culture of equity investing in all sorts of other
things is so much weaker. But I guess I really
got into it when I moved to Hong Kong, because
(04:48):
Hong Kong felt like London on steroids. The housing was
even more expensive. It was part of you know, I
moved in twenty eighteen. You there, Tracy, it was like
the extraordinary bull run, like the absolute peak the post
two thousand and eight surge in Hong Kong. And learning
about how land was really expensive but also the government
owned all the land and leased the land out made
(05:10):
money from the land. I found it very confusing and
it helped me to sort of dig into things, and
I think it helped me to like start thinking about
this as like a framework of how land works at
different places and how you can use it and abuse
it and whatever. And yeah, Hong Kong was a great
place to think about that because it's such a example
story of how bad things can get.
Speaker 3 (05:31):
So if you buy property in Hong Kong, what exactly
are you buying?
Speaker 5 (05:34):
You are buying like you're buying an apartment, right, but
you don't own the land. So if you say you're
a real estate developer, right, you buy a land lease
from the government, like a seventy five year, ninety nine
year land lease. They've clipped back and extended the terms
of the lease over time. But yeah, that's what you're buying.
You're buying the right to use it for a certain
amount of time.
Speaker 4 (05:53):
Does every just go away like other examples, like you
know what, seventy five years is up?
Speaker 3 (05:57):
Not your land?
Speaker 5 (05:58):
This is a big problem. This is a big problem
them and in these places, in places like Hong Kong
and Singapore, there is the difficulty of when lots of
the land starts to roll over, when lots of the
leases start to get at the end, the question of
whether you just bow to political pressure and just give
it to people, right, just let people keep it, or
whether you kick them off and start again, whether you
knock something down and rebuild. It's a big difficult issue.
Speaker 2 (06:20):
Yeah, Mozambique is the other country I know that does this,
which is kind of funny. Also communist history there. Anyway,
what role does housing actually play in the Chinese economy?
Speaker 5 (06:31):
So, I think the best part of living in Hong
Kong was learning how this relates to Hong Kong. Right,
So put in very simple terms the nineteen eighties, Gemin
the Mau is dead dung shopping, consolidating power, and you're
in a strange position where you have to start or
(06:51):
dounge once to start bringing in market forces into the economy.
But it's pretty dangerous. He's got a lot of political opponents.
You've got to step pretty slowly. And housing is one
of the areas it's most difficult. China's housing at the
time is pretty ramshackle and terrible. It's attached, as Joe
suggested at the beginning, to like the industrial base. Your
employer houses you on a farm or next to a
(07:14):
factory or wherever it is. But what China needs is urban,
modern residential housing. So Jao Xiang, who's the premier of
China later on, and he's one of the sort of
peak reformers in Dung's China. He credits this to a
conversation with a Hong Kong real estate developer called Henry Fox,
(07:34):
who said, in a conversation with him, where Joao is
explaining the difficulty of oh, we don't have any money
and we can't get foreign investment in and Henry Fox said,
but if you have land, why don't you have money?
How can you not have money? And basically they started
adopting on a small scale, initially the Hong Kong system.
They started leasing out land to make money. First one
(07:54):
of these is in Shenzen in December nineteen eighty seven.
There's an auction. The Hong Kong government gives them the
avil to do the auction, the auction of for pretty
small piece of land. But this is a symbolic thing
because you know, it's a communist country and the Chinese
government owns all the land. They hadn't even at this
point changed the constitution to make this legal. They're sort
of experimenting just at the edge, and then slowly this
becomes the main financing model. It's a big tax change
(08:17):
in the middle of the nineteen nineties that shifts this,
but it's it's a really good way of making money,
especially if you're the government and you own all the land.
China owns that in the mainland for communist reasons, but
it's actually a handover to some degree from Hong Kong.
Speaker 3 (08:30):
Actually, can I back up a few decades? What's land reform?
Speaker 4 (08:34):
You always here the people debating economics like, Oh, they
instituted land reformer, this is really important.
Speaker 3 (08:39):
This is what else says? Oh no, actually, land reform
was not there. What is land reform?
Speaker 5 (08:43):
Yeah, I've got a chatter on this in the book,
and it was sort of towards the end of it
quite carefully worded to not upset the people that feel
very strongly about land reform.
Speaker 4 (08:51):
Land reform things you don't talk about on Twitter. Yeah, yeah,
el asterisk and d reform. Absolutely, the bots don't attack you.
Speaker 5 (08:58):
The land reform is mostly middle of the twentieth century phenomenon,
and it's basically there was a lot of economic thinking
at the time. It was a guy called Wolf Ladashinski
who was a US Department of Agriculture employee. He was
an economist and he was an obsessive about land reform,
which essentially is redistributing really concentrated ownership of land to
(09:20):
larger numbers of people, especially in the developing rural world.
We're not talking about like, you know, cities or anything here.
And he went into Japan after World War Two, a
bunch of other reformers basically forced the Japanese government at
the time to pass a land reform bill which redistributed
an enormous amount of Japan's agricultural land. This happens in
(09:42):
Taiwan as well, it happens in South Korea, and there's
a huge amount of attempt to do it elsewhere, to
varying degrees across Asia in other parts of the world. Basically,
it's by far the most successful in those three original countries.
They try it in India, it doesn't work. They try
it in Vietnam at South Vietnam, it doesn't really work.
You know. I think one of the.
Speaker 4 (10:01):
Most impressing recurring themes on this podcast is the number
of times there is some like sort of very successful
project in industrialization or economic development, and then at the
end there's disasters. But it's only ever worked in three
like East Asian countries, and we have no evidence that
any of this works anywhere else.
Speaker 3 (10:19):
Here's the problem.
Speaker 2 (10:20):
Now you have a solution that you cannot use. Yeah, okay,
Well the other thing about land in China, and again
we're sort of fast forwarding back to the nineties, and
we should talk about the hukou systems as well later on.
But land has this really unique position I guess culturally,
socially and financially for Chinese people. Right, Like, everyone basically
(10:43):
decides they want to be a landlord, they want to
own an apartment, even if it's not built. You see
the ads in like newspapers, flyers, things like that in
a way that you don't necessarily see them for stocks
or bombs.
Speaker 5 (10:58):
Right Totally. I think there's a big cultural thing there.
I'm never too sure whether I'm like a culture is
downstream of policy or policy is downstream of culture guard
but it clearly is a big cultural impulse there, whatever
it's driven by. I remember when I lived in Hong Kong,
obviously not mainland China, but used to get adverts pushed
through your door and they'd be like invest in the
(11:18):
northern English riviera, right, there's housing in Leeds in Bradford
to be bought as investment properties. This is a big thing.
You didn't get those in Leeds and Bradford, right, if
you learn in the UK, you don't get those adverts.
So yeah, it's a big cultural thing. It's also a
big thing in the mainland, I think because of financial repression.
Basically you can't invest long term in the equity market
(11:39):
in China. Right, It's a sideways game. It's a terrible
way of compounding. Wealth. Bank accounts in general in China
for a very long period of its modern history had
like near a real negative returns because of financial repression.
So the question is if you're saving a lot of money,
where do you put it? And it's only really been
one answer. It's been a completely rational thing for China.
(12:00):
These households to do that, you know, extremely high saving
households buying property after property, a lot of them left vacant.
One of the things I say in the book is
that China has the symptoms of both a housing shortage
and a housing glove. Right, it managed to get the
worst of both worlds.
Speaker 2 (12:16):
Joe, you know what I call this what China's great
ball of money. Yeah, within the country, from asset class
to asset class.
Speaker 4 (12:40):
So, Okay, the stock market hasn't done well for a
very long time, raids on the savings are very low.
Speaker 3 (12:46):
How did like Chinese.
Speaker 4 (12:48):
Leaders feel about those emergence of a very speculative, high growth,
high return at least during the good old days, Yeah,
before a few years ago, About the emergence of this industry,
About this emergence of this sort of thing that's crucial
for a living and also becoming a major respeculative of vehicle.
Speaker 5 (13:08):
Houses are for living, not for speculations. Yes, say yeah,
I mean I should say. It's an incredibly useful way
of building out a city. Okay, this tool is like
super powerful if you're just starting out and no one
wants to invest. It's a really good way of pairing
real estate development with infrastructure. You can pay for a
lot of things. You can do it sort of expanding
very very rapidly.
Speaker 2 (13:27):
Plus you boost other sectors totally, construction, manufacturing.
Speaker 5 (13:30):
Employment, build out. Right, you don't know the industry, Yeah,
you don't have to do that much administration. It's fairly
easy to do this stuff, right, So there's lots of
advantages to it. I think people start to see the
problems even at the level of the central Chinese government
in these sort of early twenty tens, right, and you
get this series of like whack them all attempts to
(13:51):
get the big ball of money, the big ball of
credit out of the system. So the first thing you
see is the Chinese leadership saying, okay, banks limits on
real estate lending to developer, right, which is what pushes
them into the international bond markets where most of the
Chinese property developers fund themselves. Then you see the limits
on borrowing from the bond market, which sort of come
(14:11):
in and out during the twenty tens, and eventually it's
sort of seriously limited in twenty twenty, twenty twenty one.
But even then you see Chinese developers trying to essentially
borrow through pre sales from ordinary Chinese households, right, which
is like, you give me all the money to build
your house up front, I promise I'll get round for it,
(14:32):
you know, not stating actually, I've got twenty other projects
that I've got to build with your money first. There's
no escrosystem here. So yeah, you do see the Chinese
government sort of waking up to the problems, but it's
like in any other country you know, it doesn't have
same sort of Western democratic politics. But how do you
get off the train while it's moving?
Speaker 3 (14:50):
Yeah?
Speaker 5 (14:51):
Right, And they've tried with the three Red lines and
the campaign against the real estate development sector in the
last five years, and it hasn't gone very well.
Speaker 3 (14:59):
You know something I'm wondering about.
Speaker 4 (15:00):
You always hear about the CCP trying to learn the
lessons of the collapse of the Soviet Union, and they
don't want to have that fan So they're very obsessed
with this question of what brought the Soviet Union down.
Do they spend much time looking at the collapse of
the Japanese real estate bubble and the effect that Dad
had on Japan as an industrial dynamo.
Speaker 5 (15:22):
It's a great question. I'm not in direct touch on
a day to day basis. My understanding was that they
did that this was a preoccupation of the Chinese leadership.
I used to hear it a lot from people close
to economic and financial policy making that this was a
serious consideration and it was why they didn't want to
pop the bubble, which is essentially what the Japanese government
(15:42):
and the Bank of Japan did at the very end
of the nineteen eighties early nineteen nineties, they seem to
have done that anyway. I mean, it is a fascinating thing.
There's always this discussion of, you know, on an autocratic
regime can think in really long term, you know, they
think in decades and centuries. But in this case, you know,
there was a land final model that Chines's local governments had,
which has been pulled out from under them. There was
(16:04):
an asset class that Chinese households could invest in, which
has been pulled out from under them. The government hasn't
replaced those two things with anything particularly good.
Speaker 2 (16:12):
We certainly know that they look at it now, right
because we had Richard Ku on the broadcast a couple
of times, and we know that deflationary spiral caused by
real estate collapse is kind of a topic DuJour over there.
Talk more about the three red lines, because this is
something I remember. They came out when we were both
in Hong Kong, and you could see why policy makers
(16:34):
were doing it. And to some extent, you know, okay,
house prices came down and there's less new builds and
things like that nowadays, but they also seem to kind
of flub them, right.
Speaker 5 (16:44):
Yeah, totally so the three Red lines were basically the
Chinese government identifies the real estate developers as the tool
through which they're going to cool the housing market down,
and they come out with the three red lines, which
are three different metrics of debt to cash and other
sort of debt metrics, and they basically say, if you
violate one or two of these, you can maybe keep
(17:07):
borrowing only to refinance old debt. If you're green on
all of the three red lines, you're fine. Right, if
your metrics are okay, keep borrowing, go for it. But
none of them are at this point. And if you
have three red scores on the red lines, basically, if
you're violating all of these, no borrowing even to refinance. Right,
You've got to pay down debt. Now, these companies are
(17:28):
some of the most insanely structured financial vehicles in history. Right.
They can only expand through extremely rapid debt driven growth. Right.
The model is such. You know, if you're Everground and
you're paying like a fifteen percent interest on your borrowing,
you've got to keep borrowing to expand. Right. It's not
a good idea, but you've got nothing else.
Speaker 2 (17:48):
So funny thing about Evergrand also is the diversification into
a bunch of other things. I remember again in Hong
Kong asking someone like, we should do a graphic of
China evergrands all there are different businesses, right because it
would be really interesting, And it took like three weeks
to make and when it came out, it was almost
unreadable because there were just so many of them, like
splayed out.
Speaker 3 (18:09):
You know, it sounds like we work.
Speaker 4 (18:11):
I mean that was a company that had diversified into
literal wave wavepool.
Speaker 3 (18:15):
Business and about one hundred other things.
Speaker 4 (18:18):
So also just an insanely complicated, leveraged organization. There was
a multi billion dollar unicorn now is where the bag Offridos.
Speaker 5 (18:27):
We mocked when they bought Friday Futures, the US EV company,
and we all mocked right everground saying honestly, now, I'm
like maybe if they the three red lines hadn't come in,
we'd be like soon around me.
Speaker 4 (18:41):
This carsonization of Chinese companies were on a long enough timeline.
Speaker 3 (18:46):
They're all becoming EV companies.
Speaker 4 (18:48):
Like there was a great article in Bloomberg earlier this
week about multiple vacuum cleaner companies in China that are
now releasing EV.
Speaker 3 (18:56):
So I guess I'll make sense.
Speaker 5 (18:57):
That their argument was always like, you know, where do
you put your car in the car park in the
estate that you live in? Who built that? Yeah, they
believed in it, But basically, yeah, they bring the three
red lines in the real estate development sector begins contracting
very rapidly. The most in debted companies get into trouble
almost immediately, but also some of the companies that people
(19:18):
thought were pretty safe, that borrowed at pretty low rates
are getting into trouble fairly quickly as well. Your sort
of country gardens China, Vanka, like, they're all getting into
trouble quite quickly. The way I think of it is
that basically the Chinese government attacked the sector that had
grown up to intermediate between the households and the local governments,
but they didn't change anything about the incentives to the
(19:38):
households of the local governments. The households still need to invest,
the local governments still need money from somewhere, and these
companies were just making that arrangement work for those two sides, see,
and destroying them does nothing really, you know, it causes
a lot of distress, Construction activity drops, lots of people
aren't going to get the homes they invested in through
(19:59):
the pre sale system, But it doesn't really address the
actual core driving forces.
Speaker 4 (20:03):
Talk a little bit more about the local government finances
and what it is about land that is particularly importantly
because there are other ways that local governments could theoretically
taxes on there.
Speaker 2 (20:16):
I was never sure what the driving if the driving
force was at the sort of Beijing national level, or
if it was the local governments that you know, first
started doing this because they're like, Oh, here's a way
to make money and develop and look good in Beijing's eyes,
and then Beijing just kind of went with it.
Speaker 5 (20:32):
So I would trace it back largely too. As I
said before, you know, people started experimenting with land auctions
land sales from nineteen eighty seven. It starts to get
more popular in the early nineties, but it's nineteen ninety
four when they change the tax and spending system, the
distribution of spending and tax responsibilities between the Chinese central
(20:54):
and local governments that really sort of hammers it home.
So traditionally China People's Republic like decentralized in terms of
revenue and spending obligations. Local governments did most of the
tax raising. They did most of the spending. The central
government told them there were certain things they had to do,
but they did it all fairly independently. And then nineteen
ninety four they switched the system and the central government says,
(21:16):
you could raise the red but we'll take most of that, right, yeah,
will tell you how much you get back of that.
It became a much more centralized system, and overnight the
local governments were left with huge spending responsibilities those don't change,
but only making sort of sixty or seventy percent of
the money that they needed to fund them. They stumbled
through the nineteen nineties trying to find ways of doing this.
(21:36):
There's lots of sort of flagrantly illegal administrative fees and
fines placed on things. This actually gets them in trouble
because it's very politically sensitive. You know, there's rural Chinese
residents being absolutely rinsed for anything the local governments can
get their hands on. And they land on land. Basically,
they see the land auctions, which are off balance sheet revenues.
(21:58):
They do not count for the purpose of being remitted
to Beijing in the same way that normal tax revenues do,
and they say, right, okay, that's it. That's what we'll do.
That's so why I will raise money. And you see
the proportion of income rise and rise and rise very
aggressively through the late nineteen nineties from a pretty sort
of residual amount that was useful for it was useful
for land allocation, it wasn't mostly useful the beginning for
(22:20):
raising money, and it becomes the main fundraising tool.
Speaker 2 (22:22):
And then they're in the trap. Yeah, the land trap.
Has any country ever successfully gotten out of this type
of situation?
Speaker 5 (22:30):
It depends what you mean my success.
Speaker 2 (22:31):
Yeah, without a massive collapse or without a period of
very long stagnation, which seems to be what China is
in now.
Speaker 5 (22:39):
I would say basically no. And funnily enough, I actually
think one of the best cases for relatively rapid like
return to normalcy is after two thousand and eight in
the US specifically. You can tell how few cases there
are that I'm using the Great Recession.
Speaker 2 (22:58):
This is the best one, as like.
Speaker 5 (22:59):
This might be the best outcome for a number of
different reasons. But yeah, that might be the best outcome.
There are places that didn't get into the trap in
the first place.
Speaker 2 (23:05):
Right that that seems to be the ideal. Probably.
Speaker 4 (23:07):
I've obviously never been to mainland China. All of the
China news that I consume is on propaganda that makes
it onto my Instagram reels that shows all these incredible
futuristic cities and robots doing everything. One hundred percent of
my China news consumption makes it look like paradise on
Earth again, because I only consume propaganda.
Speaker 3 (23:30):
Is it actually stagnating?
Speaker 5 (23:32):
I will say I can't claim to have been to
mainland China for years now. I think it is. I
think the long term threat from undermining what was really
right at the middle of the Chinese development model for
a very long time and not replacing it with anything
has been really dangerous. You've seen this effort as investment
in the real estate sector has dropped and dropped from
(23:54):
drop to drive it into the manufacturing sector. But the
reality is that the manufacturing sector, as big as it
is in China isn't big enough to productively absorb all.
Speaker 4 (24:02):
This isn't the question like, can the Chinese manufacturing sector
just be so dominant that it just offsets the decline
of real estate?
Speaker 3 (24:12):
And your analysis is no.
Speaker 5 (24:14):
My analysis is no, Chinese economy is too big. I
would say, and too big means that the domestic real
estate market is absolutely gargantian. Right. The thing you're trying
to replace is enormous, and there's only so many buyers
for your products in the rest of the world. And
this is why you see I think the anti evolution campaign.
Speaker 2 (24:32):
Trying to get consumption up exactly.
Speaker 5 (24:34):
The pressure against it, because the sort of consequences, the
negative consequence is already starting to display themselves. And we're
really like three years into this really big push to
drive the investment into manufacturing, and it's showing those problems
in a way that it's a real estate much longer.
I don't think it can be a like for like replacement.
Speaker 2 (24:52):
Wait, talk more about real estate and productivity, because this
is something that I didn't really internalize until I read
the chapter in your book China chapter.
Speaker 5 (25:00):
Yes, so there is a lot of really really interesting
research about real estate in China and what it's done
to productivity. So if you think about it from the
perspective of we're going to get into a banking argument
that's already got that's going to get me in trouble
as well in terms of like the you know, the
amount of credit you can have. But if you think
there's any constraint on the amount of credit, which obviously
(25:21):
in China there is, there are actual like targets and limits.
It's still a fairly state oriented system in lots of
different ways. Then the resource is going to one part
of the economy means they aren't going to another part
of the economy. And in China's case, this means employment,
it means material investment, it means you know, steel and
concrete and copper and everything else. The real estate sector
(25:41):
in general, in a long run, I think has pretty
low productivity. Right. You can build constructively in places where
you know housing's really in demand, but there's only so
much you can get out of it.
Speaker 2 (25:53):
It's not making new stuff.
Speaker 5 (25:55):
No, totally, and certainly in China. What has happened and
what was certainly happening during the run up to the
the three Red Lines policy is you saw a lot
of productive, entrepreneurial and innovative activity instead going into real estate.
We talk about Chinese real estate developers having lots of arms.
Every big Chinese company was trying to run a real
estate company on the side during the twenty tens, right,
(26:16):
because there's so much money to be made, why not
do that as well? And there's really interesting research from
yush at the IMF talking about how individual Chinese entrepreneurs
would go into real estate over time because there's so
much money to be made and it is productivity destroying,
especially if I think you're in a state oriented financial
system where you're not probably going to see like a
(26:37):
two thousand and eight style crash. This is where you
see the consequences come through, you know.
Speaker 4 (26:58):
I Wou was thinking about that the Sopranos where Aj
tells us Sunday's like by real estate, they're not making
any more of it, whether China elsewhere, that's not really true,
Like a artificial islands exist b again in.
Speaker 2 (27:11):
The islands literally a drop in the ocean.
Speaker 3 (27:15):
You guys start somewhere. You guys start somewhere.
Speaker 4 (27:17):
But more importantly, again if the my mainlining consumption of
Chinese propaganda, I always see these things like this used
to be a desert. Now it's this beautiful like farmable
land and there's greenery here. Like whether it's China or elsewhere,
or the history of land like, it's not really that fixed.
They always find new ways to sort of create habitable land.
(27:38):
That's that's what it used to be human.
Speaker 5 (27:40):
I think there's two things. That one is like actual reclamation,
which is like we've probably added like can you.
Speaker 4 (27:47):
But by the way, I think that's the most powerful
word in English language, reclamation, because it's like it means
turning watery land into land. Yeah, but the implication is
like we're reclaiming it. We are reclaiming what used to be.
Are think there's such a powerful world, right, It's very.
Speaker 5 (28:01):
Like Francis Bacon. It's very like, you know, man's dominions.
Speaker 4 (28:05):
Like this land that we ken't live in was only
we were temporarily embarrassed.
Speaker 5 (28:11):
It's always good to do land recommention where you can,
but there's really not very much of it, Okay. I
think that the more interesting way that you can create
more land in the way that I think of it
is more like if you think of land as a
like a commutable, reachable area, then we've always at treaded
more land. Right, It's like the Bronx wasn't useful land
one hundred and fifty years ago, and now it's extraordinarily
(28:33):
expensive land because you can get into the productive center
of New York. And that's actually one thing that loosens
the sort of trap conditions around land over time. You
see this in the US, like during the early twentieth century,
you saw New York, for example, loosen a lot of
its problems with housing in real estate because suddenly it
was like the outer boroughs you could populate full of
(28:55):
people and they could work in Manhattan still and that
was fine. And that was a bit like multiple New
York's worths of land to attach to it.
Speaker 2 (29:03):
Oh, here's where we can talk about the hook house system,
because that ended up being precisely a limiting force on
this dynamic.
Speaker 3 (29:09):
Yeah.
Speaker 5 (29:09):
Absolutely, And I think that that feeds into the whole
question of the Chinese welfare system and the fact that
Chinese households are driven to invest so aggressively in land. Right,
if your welfare is linked completely to the place where
you grew up, and you become a migrant worker and
you go and work somewhere else, then you're going to
(29:32):
want to invest very aggressively, either in real estate where
you can in the place you moved to, or in
real estate at home. It's essentially like a sort of
savings technique more than it is. Again in China, it
feels like the land use and the land as an
asset are more divorced from one another than anywhere else.
You can see this in the rental yield data right,
rental yields and rents in China aren't expensive, even in
(29:53):
you know, the really popular cities, they're not expensive at all.
So that that sort of gap and the hook how
system really feeds into this by essentially it's another force
driving Chinese households to invest more and more and more.
Speaker 4 (30:07):
Sorry, I don't totally understand, explain a lot of what
is the essence of the system, what are the constraints
are played, and then clarify like how it how the
incentives therefore are to enquire.
Speaker 5 (30:17):
But the essence of the system basically is that you
have a welfare system that is linked to the place
where you're registered as a household. It's usually the place
where you grew up, so you're able to get all
sorts of different ordinary welfare state things based there only.
And if you move for work it doesn't matter, right,
(30:38):
So you're not eligible if you're a migrant worker to
all of those things in Shanghai, for example, And these
things are really really so you can move there, You
can move there.
Speaker 3 (30:48):
But you really be a sort of literally a second classes.
Speaker 5 (30:52):
Yeah. Absolutely. So this is without huge amounts of external migration,
or with almost no external migration. Really, China has been
able to create system that lots of other parts of
the world have with very poorly paid migrant workers turning
up who don't have many rights in the place they'm
moving to. These are the people doing the construction jobs
that people doing a lot of low paid work.
Speaker 2 (31:11):
I don't know if this still happens, but I remember
in the two thousands, if you early two thousands, if
you walked around Beijing at night and looked in the
windows of some of the restaurants, the waiters would be
sleeping on the table because most of them came in
from the farmland, didn't have access to housing. So kind
of crazy.
Speaker 5 (31:27):
Yeah. Yeah.
Speaker 4 (31:28):
People who are sort of more on the immigration restrictionist
end in the US will often say things like, you
know what, the US has actually fallen behind on productivity
because we have this endless supply of cheap labor with
diminished rights. Had we not had that, that would have
forced US firms to do more capital deepening, maybe invest
(31:49):
in robots, et cetera. It's interesting because we think of
China as a very advanced industrial nation, and yet your
description that makes me think that's story doesn't really hold
water totally.
Speaker 5 (32:01):
And I understand why people concentrate on that element of
the Chinese economy. It's like the most exciting, interesting bit,
and you don't need to downplay in any way the
advanced manufacturing and sort of hyper futuristic elements of it
to say that that doesn't represent the overwhelming share even
Chinese industry, right, which is relatively low productivity, relatively low return.
(32:22):
It's at scale, but it's not enormously like futuristic, and
certainly once you get out of the manufacturing industry, you
are going into the standard East Asian development model, where
the service industries productivity is absolutely awful, right, really really
poor service productivity. So yeah, I think it's a the
two things are true at once. Right. It's large and
(32:42):
it contains multitudes, but it's not most of the story
to me.
Speaker 2 (32:45):
Do you see any signs that Chinese people are starting to,
I guess move into other assets like equities, probably not bonds,
But we know that government has been trying to stimulate
the entire economy, and I think they've been pretty clear
they've been trying to lift various asset prices, not house. Well,
now they're doing housing as well. Actually, but do you
see any signs that people are starting to change their
(33:06):
minds on something like Chinese equities.
Speaker 5 (33:08):
I think to make the Chinese equity market really work,
you would have to make a series of deep political
decisions about the way China's run that I think they
probably won't make, which is basically things like Jack mal
when he got really slapped down right. Basically, you need
to allow that sort of behavior, right, You need to
(33:28):
allow the innovation. You need to allow the entrepreneurs to
sort of go nuts. You can't have all of these
restrictions around. We don't want the young people playing video games,
and we want it to be driven into this kind
of robotics and not that kind, and all of those
sort of limitations are going to I would say, prevent
that from happening. There's too much political activity that a
Chinese company has to do.
Speaker 4 (33:49):
What about just like the hyper competitiveness. I mean, people say, well,
there's hundreds of ev companies in China, most of them
are going to fail, and yet you read about launches.
I don't know, like this is one of those stories
that I really like because it feeds all my biases,
So therefore.
Speaker 3 (34:07):
I'm sort of very skeptical of it.
Speaker 4 (34:08):
But I've probably repeated it's like, oh, like China's stock
market hasn't done well because they're too good at capitalism,
because it's too competitive, because they really get it, they're
really competing has driven all this abundance and so forth, Like,
is there something to that that, Like, the reason Chinese
equities haven't done well is because with such intense competition,
with the provinces all having their normal champions, that none
(34:31):
can really sort of capture something that might reflect sort
of monopoly rents.
Speaker 5 (34:34):
I think there's definitely something to that in a way.
When I think about that, I would say, it's true
when you're subsidizing the competition, it's not true competition in general. Right,
It seems crazy to me to say, like, not bad
if everyone's getting like cheap inputs. There's lots of competition.
Speaker 4 (34:48):
But the provinces still do have a role in subsidizing,
either implicitly or directly in subsidizing their national champions. And
when she says, yeah that we want to make spark
plugs big priority for the next five years they all
go They still do that, right, They scramble to find
their local spark plus.
Speaker 5 (35:06):
And I think there's lots of like American examples and
examples elsewhere. And sector is where people said, oh, it's
too competitive, no one will ever achieve it. Uber is
a good example. People said this would never work. It
does work, right, So there is a scale that you
can build where I think you develop a value even
in a market with it's really competitive and really sort
of low entry costs. But you won't do that if
(35:28):
every other imagine a world with Uber but where every
other rideshare company was aggressively subsidized every time above a
certain market cap, then yeah, you wouldn't have Uber at
a certain market cap.
Speaker 2 (35:39):
I'm really curious because again, the book goes through it's
not just China. It goes through all sorts of land models.
But what was the most interesting one that you looked at.
Not only does it go across different ways that different
countries treat land across the world, it also goes across time,
like three thousand years worth of human history.
Speaker 5 (35:57):
Yeah, I should emphasize to anyone listening. I was really
interest and the China stuff, but it's not a not
a child. The two most interesting to me, one of
which because I live there and I think it's the
most unusual and fascinating real estate system in the world
is Singapore, which has defied in many ways a lot
of the limitations that other countries have seen. And one
(36:18):
of the first parts of the book, which is like
Colonial America, where there were all of these efforts to
turn land into money. Right, these colonists get to a
place where they have essentially to them, infinity land. It
just keeps going on and on. They don't know where
it stops. It seems to be relatively fertile and good
and more people turn up, but have shortages and cash
and labor and everything else. And there's all of these
(36:41):
efforts to turn land into money with public and private
land banking projects. I found all of that like absolutely fascinating.
It's not actually something I knew very well before starting
to research the book. Yeah, so Singapore and Colonial America.
Speaker 4 (36:53):
What is it about Singapore that makes it? I actually
I don't know why. I sort of assumed they did
the same ninety nine year they leason that this is
the most interesting thing. They start off with all the
inherited things that Hong Kong starts off with. Up until
the middle of the twentieth century, the cities have run
on very very similar lines. Hong Kong goes off in
one direction and Singapore goes off in another. And the
Singaporean direction is basically, how do you maximize home ownership permanently?
(37:18):
How do you have a sustainable model for making sure
people can still afford to come in. So what they
have is this bizarre public private system. I say bizarre,
you know, it's very impressive where the government owns most
of the city's land, not all of it like in
Hong Kong, but most of it, and they have the
Housing and Development Board that builds housing estates. They then
sell the units in the housing estates to Singaporean citizens.
(37:42):
You can only own one, you can't own multiple and
rent them out. There are restrictions on how long you
can hold them before but there's an internal market, but
you can only sell them to Singaporean systems and permanent residents.
The amount of building is done to make sure that
everyone can afford it. They've really divorced usage from speculations totally.
Speaker 5 (37:59):
They divorce users from speculation and a place that I
think most people think of as very capitalistic, free market,
low tax has basically decided this asset class land and
real estate, this is something different and we're doing Yeah,
we're doing a different thing with this. Were you know,
the normal forces simple. There's so much international money center
of like capital and trade flows is.
Speaker 4 (38:18):
Rich commercial reachs though in Singapore they do. You remember
this because when I was in Singapore, I saw the
ticker symbol on this out of a few buildings. It's
like you could invest in this but anyway, Yeah.
Speaker 5 (38:29):
But commercial state a little bit different. But the residential
and real estate and they've done this in again, they
decided land was different. They have a thing called the
Land Acquisition Act, which really allowed them to strip a
lot of people of their land extraordinarily low prices through
the sort of sixties, seventies, eighties, and it's allowed them
to do something very very different. I don't know whether
(38:50):
most countries can sustain the idea that capitalism works for
everything but not land, and which is just going to
be One Singaporean senior politician described it to me as piracy.
They did in the seventies and eighties. Pennies on the
dollar basically demanding people handover this land so it could
be housing for Singaporeans. But it has worked very well.
Speaker 2 (39:08):
Okay, so China probably cannot pursue the Singaporean model at
this point, right, But why can't they institute like a
stronger social safety net so that the burden of saving
for retirement, for health emergencies, things like that doesn't always
necessarily fall on the citizens and therefore they have to
(39:28):
invest in highly speculative assets.
Speaker 5 (39:31):
Yeah, they should, is the answer. There seems to be
huge political opposition to doing this at the top of
the Chinese Communist Party, and it's bizarre again because you
talk to someone like Richard Ku and it'll give you,
it'll explain why if you don't do this, this is
the consequence, right Japan is the consequence long term stagnation.
It's going to be really difficult. They should do all that,
and maybe they will be sort of drummed into it eventually,
(39:54):
because I think the alternative is both stagnation and lots
and lots of trade friction with the people you're exporting to,
as we've already seen.
Speaker 3 (40:04):
Right, because it's not just the US, is it.
Speaker 4 (40:06):
Everyone's sort of no one there got to be a
lot of countries that are not thrilled.
Speaker 5 (40:11):
No one's totally happy with it. It's a weird mix
because for some countries it's like, if you're not going
to make some of these items, right, If you're a
country that's simply not gonna make evs, then why should
you care about getting the really cheap evs. But everyone's
got something to be upset about. In Southeast Asia, it
was always steel when I was there. Everyone wants to
have their own local steel sector, and they don't like
the Chinese dumping of steel in Indonesia. They don't want
(40:34):
like cheap Chinese direct to consumer merchandise coming in because
it messes with their small and medium sized businesses. I
guess for most of these countries, the difficulty is do
you want to pick a fight with the Chinese government.
It's not an obvious question like it is in the US.
Speaker 4 (40:47):
I guess I just have one last question. And you know,
the sort of Singapore example is what reminded me like
land is weird, Like the idea that you could have
a capitalist system except for residential land.
Speaker 3 (41:03):
A lot of people actually kind of think that.
Speaker 4 (41:06):
You hear, what is the Georgists right? And they think
like no land is special and we need to have
these like special taxes on ownership.
Speaker 3 (41:15):
And yeah, we love free markets.
Speaker 4 (41:17):
But again, maybe because there's always so much land, they're
not making much more of it, et cetera. Maybe there
really is something to do. It's sort of unfair, Like
I get born in the year nineteen eighty and I
already a bunch of people already own the land around me,
which doesn't really seem fair. It's like I was just born,
where's my chance? Like we're never going to go to
the pure Singapore model, But are there things that we
(41:39):
could do with the tax system that would like sort
of further hammer home the idea that residential land is
for living.
Speaker 5 (41:48):
Yeah, I think there's dozens of different things you could do.
But I mean one of the big things is that
the legacy of Henry George and the politicians in municipal
America that really loved Henry George is that America has
relatively high property taxes. Anyway, you can do all sorts
of things with property taxes to lean more of the
value on the land rather than the structures. Right, Yeah,
lots of states, lots of cities have done this. I
(42:08):
think it's going to be increasingly important in the future
because what you're going to get is increasingly people inheriting
homes from their parents when you can't afford them. And
then that main store of wealth is about whether your
parents decided to buy in the right place at the
right time. I talked to a lot of seventy year
olds will be like, wow, I picked my two bedroom
flat in nineteen seventy three, and yes I bought it
(42:28):
for three and a half dollars, but it's mine. That's
going to be a lot less tenable I think when
it's handed down wealth. So yeah, there's loads and loads
of things. And Henry George is in the book. The
political consequences have George's and fell apart in there too.
Speaker 2 (42:42):
All right, Mike Bird, thank you so much for coming
on our thoughts and grabs on the book.
Speaker 5 (42:46):
Thank you very much for events Joe.
Speaker 2 (43:00):
That was really great and genuinely the book is great.
Speaker 3 (43:03):
Yeah.
Speaker 4 (43:04):
I love talking to Mike once again. I'm just like,
hasn't he been like on the internet as much as
we have?
Speaker 3 (43:09):
How do you? How did you write a book of
this time?
Speaker 4 (43:11):
I have no idea, don't understand how anyone writes a book,
especially a very serious book on a very big, meaty topic.
Speaker 2 (43:18):
But I just want tweeting constantly.
Speaker 3 (43:20):
Well tweeting. He tweets a lot. Speaking of propect, It's
like it would be one thing if you were never online.
He's online as much as I am.
Speaker 2 (43:26):
Okay, you know you asked that question about whether or
not Chinese cities are actually futuristic. Yeah, I have an
anecdote on this point. I think I might have said
it before, but China is the place where I went
to both the most impressive bathroom ever in like a
highly futuristic luxury shopping mall in Beijing, and also the
(43:48):
worst one ever in my entire life, which was a
rural It was basically a hole in the ground.
Speaker 5 (43:56):
Right, Yeah, terrible.
Speaker 3 (43:57):
China. It's a land of contradiction. Thank you.
Speaker 2 (44:01):
Thank you for highlighting the cliche.
Speaker 4 (44:03):
No, I thought like it. It always did seem very interesting.
It still does that. Like there's so much speculation that
happens in China, and I always found.
Speaker 3 (44:12):
That to be a little weird. I also just find.
Speaker 4 (44:15):
The idea of like buying a property, but it's actually
really you're not buying it early. Buying the property for
like seventy five years to be a little weird.
Speaker 2 (44:23):
But on the other hand, that kind of exists in
New York.
Speaker 4 (44:26):
Yeah, yeah, and in the US, like, look, we pay
property taxes and perpetuity, which means to some extent that
when you own something, you are paying a permanent rent
to use it, and if you stop paying that rent,
then you could theoretically lose it. So maybe it's less
weird than I thought it is. Actually we should do
more on Singapore specifically, like but also you know, like
(44:49):
I'm not sure to your point in the very beginning
whether people actually want the divorce between usage and speculation.
I just think that for several of the last decades
didn't have to choose. You got to live in and
he made.
Speaker 3 (45:01):
A lot of money.
Speaker 2 (45:02):
I think it's very hard to get off the train
once it's kind of rolling, right, And that's the problem
that we're seeing in China, and now they're trying to
walk this very fine tightrope where it's like, we don't
want to make everyone incredibly poor, but we also want
to depress housing and the importance of housing in our
economy in order to boost manufacturing and productivity.
Speaker 4 (45:22):
This is why, again my proposal affordable housing for one
year and then it goes back to being really expensive.
Speaker 2 (45:29):
All right, well you can suggest that, Joe, Yeah, we
go to Baja.
Speaker 3 (45:32):
I'll run on that. I'll run on that. I'll run
on that platform.
Speaker 5 (45:35):
All right. Shall we leave it there?
Speaker 2 (45:36):
Yeah, this has been another episode of the All Thoughts podcast.
I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 4 (45:42):
And I'm joll Wisenthal. You could have followed me at
the Stalwart.
Speaker 3 (45:45):
Follow our guest.
Speaker 4 (45:45):
Mike Byrd He's at Birdie Word and check out his
book The Land Trap, A New History of the World's
Oldest Asset class Follow our producers Carmen Rodriguez at Carmen Arman,
dash El Bennett at Dashbot and kel Brooks at kel Brooks.
From our odd Lags content, go to Bloomberg dot Com
slash odd Latch. We've the daily newsletter and you can
chat about all of these topics twenty four to seven
(46:07):
in our discord Discord dot gg slash odlines.
Speaker 2 (46:10):
And if you enjoy odd Thlots, if you like it
when we talk about the world's oldest asset, then please
leave us a positive review on your favorite podcast platform.
And remember if you are a Bloomberg subscriber, you can
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Apple Podcasts and follow the instructions there. Thanks for listening.
Hosts And Creators
Joe Weisenthal
Tracy Alloway
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