Li Gan: “Ghost” Towns?: Why 50 Million Housing Units in China are Vacant

By Joanne Wong | First-year DUSP student and STL Fellow

High vacancy rates in China cannot solely be attributed to investment purposes or cultural motivations, but are in fact a consequence of misunderstanding urbanization, according to Prof. Li Gan, director of the China Household Finance Survey at Southwestern University of Finance and Economics in China and Clifford Taylor Jr. Professor in Liberal Arts at Texas A&M University. In his talk to the DUSP and CRE community on February 16, Prof. Gan urged researchers in both the public and private sectors to take a closer look at the phenomenon as it will have serious implications for housing markets in the future.

Prof. Gan’s research is drawn from the China Household Finance Survey (CHFS), a national survey that collects micro-level information about household income, expenses, assets, and liabilities. The survey has been conducted every other year since 2011, and has grown from sampling 8,500 households in 160 communities to 40,000 households in 1,400 communities.

The vacancy rate in China in 2015, calculated with the CHFS data, was about 22%, 18.7% of which was from households with multiple homes and 4.1% from those with one home. “The big numbers (to remember) would be 54 million units, and six billion square meters [about 64 billion square feet] of houses are not used,” said Prof. Gan.

The controversy over vacancy rates in China is mostly definitional, said Prof. Gan. CHFS includes the categories of “second homes.” which contributes 6,370,000 units to the total vacancy count, and units temporarily used by family members, totaling 6,570,000, or by friends/relatives, totaling 3,480,000; but Chinese government officials disagree with the inclusion of these groups in the count. Prof. Gan also highlighted some factors that would have statistically significant effects on the vacancy rate because homes could serve many purposes: utilitarian, where the owner experiences an increase in income/education and can afford another home; cultural, where the owner provides a property to unmarried children which can make them more competitive in the marriage market; or investment purposes, where households that own businesses can use housing as collateral for bank loans.

The logic most often used by researchers in the Chinese government, real estate, and investment banking sectors to challenge the CHFS data on vacancy is as follows: between 2000 and 2010, there were 70 million additional households in cities, and 70 million new housing units were built and sold over a similar time period; therefore, vacancy rates cannot be as high as Prof. Gan suggests. In response to this, Prof. Gan looked at how households actually urbanize in China. While some households urbanize by migrating from a rural to urban area, many others in fact can urbanize without moving at all if their communities are simply re-classified as “urban areas.” Prof. Gan calls this group of households “redefined migrants” (as opposed to “relocated migrants”), and they make up about 11% of the country’s population. The 150 million redefined migrants in China brought about 38 million housing units with them as they urbanized, and have essentially no demand for new housing.

This is an urban planning problem, as the Chinese government publishes the urbanization rate every year, which guides real estate developers in their decisions to acquire land. “Misunderstanding urbanization is likely a cause of 38 million overbuilt units of commercial housing in China,” posited Prof. Gan. Housing units are built in cities according to the state’s projections, and are sold not to rural migrants in need of new housing, but to homeowners looking for second homes.

In her remarks as discussant, Prof. Siqi Zheng of the STL Lab commended the pioneering work of Prof. Gan in launching the CHFS, which has resulted in many high-quality research papers and policy reports by other scholars in China. She pointed out the issue of spatial mismatch, particularly the oversupply of housing in inland lower-tier cities leading to the ghost city phenomenon. She encouraged Prof. Gan to release quarterly vacancy data to better understand the absorption rate in the market in order to predict future conditions.


Despite much attention on “ghost towns” in China, no official vacancy rates exist in the country. This talk uses data from the China Household Finance Survey, which collects expansive micro-level information about household wealth from a nationally representative sample of over 40,000 households. Professor Gan will discuss how to determine the latest vacancy rate for China, and suggest some causes for the phenomenon.

Professor Li Gan, Clifford Taylor Jr. Professor in Liberal Arts at Texas A&M University and Research Associate at National Bureau of Economic Research, is a specialist in econometrics and applied microeconomics. He holds a Master of Science in statistics and PhD in economics from University of California, Berkeley, and a Bachelor of Engineering from Tsinghua University. He has published extensively in areas such as econometric theory, economics of aging, public economics, and the Chinese economy. In 2009, he initiated and has been directing the China Household Finance Survey at Southwestern University of Finance and Economics in Chengdu, China.

Professor Siqi Zheng  is the Samuel Tak Lee Associate Professor of Real Estate Development and Entrepreneurship for MIT CRE and DUSP and faculty director of the Samuel Tak Lee MIT Real Estate Entrepreneurship Lab is Faculty Director of the MIT Samuel Tak Lee Real Estate Entrepreneurship Lab. Previously, Professor Zheng was Professor and the Director at the Hang Lung Center for Real Estate and the deputy head of the Department of Construction Management at Tsinghua University in Beijing, China. She specializes in urban economics and China’s housing market, particularly green cities, housing price dynamics, and low-income housing policies. Professor Zheng pursued post-doctoral research at the Harvard Graduate School of Design after receiving her Ph.D. in urban economics and real estate economics from Tsinghua University.