Government incentives aren't that big? In the US or in China?
You think empty cities crop up all on their own? With no rents being collected, you think people will just keep building and tying up their capital for no reason?
If you mean the US, the incentives are not trivial. Interest rates are a big one and they are kept artificially low. You can write off your interest. You don't have to pay capital gains taxes on the first $250k of profit on a house.
There are first time buyer programs too. And standards for lenders were greatly relaxed around 2000, with borrowers no longer required to put 20% down.
Fannie and Freddie also helped by accepting the risks of loaning to buyers with less than adequate credit. Lenders had no incentive to even check the claimed income of buyers.
So, not sure how all these things aren't that big. I guess housing prices just double on their own for no reason.
First off, bubbles can have many causes. Cheap, stupid credit, feeding off itself can be the main one. The government regulates credit; so ultimately it failed its duty if credit blows up. I'm just not sure if this is your point, or if you think prescribe to the "the market knows best, any problems are caused by the mere presence of the government, and wouldn't be caused in a free-market utopia" philosophy of Alan Greenspan, the guy who arguably caused the GFC. Government inaction, and government action both can cause damage. The government does have a part to play (IMO), and sometimes it does play it badly.
Which empty cities? The one in Inner Mongolia? That was the fault of the local government.
The one in Shenzhen, where the prices are really fucking high? There is no empty city in Shenzhen, because rich investors are buying up apartment at 10-40 times the median income. Crazy investors.
There's a huge demographic component to the bubble, too. There's a massive cohort of 20-30 year olds, and bugger-all 10-20 year olds. Because rich people have less children (and there's the One-Child thing, but even if there wasn't the numbers would be similar). Guess who is looking at buying a house? Guess what will happen to demand, in 10 years? That's what I'm talking about, when I say that demographics can have an effect.
Now, we come to interest rates and inflation. Artificially low interest rates in China, yes. They can buy gold, or invest, or buy houses; but due to the massive gains that houses have been showing (due to demographic effects, and income gains I think) they pile onto houses, causing a bubble. The government pushing construction projects MITIGATES this, though they could end up overshooting (yay, apartments for poor people).
During the Great Depression, the gold standard screwed things up, as the government had their hands tied and couldn't do QE. Did the government also cause the Great Depression, by sticking to the gold standard? No doubt, if you look to blame them for everything.
I'm not claiming non-empty cities are built by crazy investors.
I don't know whether particular empty cities are caused by local or national government in China, or both. I was merely arguing that government was distorting things with incentives or coercion.
Cheap stupid credit's the cause? I agree. But in a free market, government does NOT regulate the cost of borrowing money. That's governed by supply and demand in a free market. The US is not a free market in this respect. Neither is China.
The gold standard was not the cause of the Great Depression; the collapse of the investment bubble created by the Federal Reserve, along with the interruption of international trade by the Smoot-Hawley Tariff Act caused the initial problem. Subsequent interference in the economy by both Hoover and FDR extended the problems.
The gold standard merely prevented the government from inflating away the dollar and using inflation to hide the consequences of other bad policies. Its a form of discipline that the founders wisely put in place to prevent the disastrous policies that many other governments have perpetrated throughout history.
But now the constraint of the gold standard is off and much larger bubbles can be created.
You think empty cities crop up all on their own? With no rents being collected, you think people will just keep building and tying up their capital for no reason?
If you mean the US, the incentives are not trivial. Interest rates are a big one and they are kept artificially low. You can write off your interest. You don't have to pay capital gains taxes on the first $250k of profit on a house.
There are first time buyer programs too. And standards for lenders were greatly relaxed around 2000, with borrowers no longer required to put 20% down.
Fannie and Freddie also helped by accepting the risks of loaning to buyers with less than adequate credit. Lenders had no incentive to even check the claimed income of buyers.
So, not sure how all these things aren't that big. I guess housing prices just double on their own for no reason.