It's the perfect example of a circular stimulus: the U.K. is facing a shortage of bricks so bad it has to import them from countries like China to build houses to try to solve its worsening housing crisis. And what is one of the main reasons for the housing crisis? Very likely, it's the Chinese government's stimulus for its own economy.
Chinese buyers flush with cash are bidding up house prices in many of the world's big cities, creating shortages of properties for local buyers and worries that they are fueling a massive real estate bubble. They are also creating a construction boom in the process, which is boosting imports of Chinese building materials, so the question is whether this is a deliberate policy or not.
The National Association of Estate Agents (NAEA) of the U.K. released a report on Thursday arguing that a shortage of bricks has contributed to poor housing supply over the past decade in Britain. In it, it said the British construction sector would require a total of 1.4 billion bricks in order to resolve the country's housing shortage, enough to build 40 Tower Bridges -- that's the iconic twin-towered bridge over the Thames you see in lots of postcards from London.
The report said two thirds of small and medium-size construction companies in the U.K. had to wait two months for an order for bricks to be filled, with a quarter of them facing a four-month wait and 16% even waiting for half a year.
Brick imports by the U.K. from non-EU countries (of which China makes a big part -- separate data were not available) jumped last year by almost 40% from 2014, as did imports of other building materials, data from the Department for Business, Energy & Industrial Strategy show.
It is of course difficult if not outright impossible to calculate exactly how much of the rise in home prices is due to Chinese stimulus money pouring into property in the U.K. and elsewhere, and then how much of that money goes back to China in the form of imports of construction materials for an expanding real estate sector.
What is becoming increasingly obvious, however, is the importance of Chinese property buyers as marginal buyers for many of these real estate markets. That is because a lot of Chinese companies are seeking to invest in overseas property the money they take on as cheap loans from a state hoping they will instead invest it in creating growth at home.
Louis Kuijs, head of Asia Economics at Oxford Economics, pointed out in recent research that there is a gap between sluggish private investment and buoyant public investment in China. He also identified a gap between surging credit expansion and slowing Chinese GDP, which is even more significant.
"To the extent that the large gap between credit expansion and growth of GDP and investment reflects re-channeling into financial assets, it partly points to distortions in China's financial system and a lack of appetite to invest, thus underlining the limits of credit-based stimulus," he wrote.
The lack of appetite to invest is the crucial bit here, because the companies must be doing something with the money if they don't put it back in the Chinese economy. If we look at the increasing importance of Chinese investors for global real estate, it does not stretch the imagination too hard to say that part of the cheap loans they get from the state are going abroad.
The U.K. is not the only destination of the Chinese buyers. U.S. homes are sought after, too. According to the latest data from the National Association of Realtors, Chinese buyers made up 26.3% of total foreign buyers of residential U.S. property between April 2015 and March 2016, when they bought houses worth $27 billion.
The Chinese were followed at great distance by Canadians, who bought residential property worth $8.9 billion in the period, Indians with $6.1 billion, the British with $5.5 billion and Mexicans with $4.8 billion. Such a big difference in amounts suggests the Chinese buyers are perhaps more than just rich individuals.
Looking at imports of building materials from China, they have increased in the U.S. too in recent years, data from the U.S. Census Bureau show. Between 2013 and 2014, imports of stone, sand, cement, etc. increased by more than 9% and jumped by 19% between 2014 and 2015.
Of course, there is no actual proof that the Chinese buyers gobbling up properties around the world -- so eagerly that Vancouver had to impose a hefty tax on foreign buyers to cool off its red-hot real estate market -- are one and the same as the Chinese companies that are awash in state stimulus cash.
And yet, going back to 2013, recall that the People's Bank of China allowed Chinese companies to lend money in renminbi to their offshore branches without any limit and without any requirement for them to first notify regulators.
That essentially meant that companies could transfer money out of China without having to worry about capital controls. Home prices started increasing strongly around the world since around that year.
Of course, this could be a coincidence, and probably is. But still, it makes one wonder.