A housing crisis in China would look nothing like what's happening in the US — it could wipe out entire families instead of one generation

• Comparing the state of the housing market in the world's two biggest economies reveals two different breeds of crisis.
• In the US, millennials are getting screwed by and priced out of the housing market.

It's not a great time to be a millennial trying to buy a home.

Millennials are supposed to be in their prime homebuying years right now, but instead, they're priced out of urban markets and facing the prospect of renting forever.

"Due to the soaring housing prices in urban areas, millennials in general cannot afford to purchase a property, which has become a global phenomenon," Chunling Li, a prominent Chinese sociologist, wrote in an October 2020 paper called "Children of the reform and opening-up: China's new generation and new era of development," published in the Journal of Chinese Sociology.

Housing markets all over the world are seeing some version of this crisis, but comparing the current state of the housing market in the world's two biggest economies reveals two different breeds of crisis. While the US housing crisis is shouldered primarily by one generation, China's potential housing crisis will be felt across multiple generations within the same family. And as China contends with the potential default of Evergrande — one of the country's largest property developers — a housing crisis looms ever closer on the horizon.

America's housing crisis: A generation bears the brunt

In the US, millennials are getting squarely hammered when it comes to finances, and nowhere is that more apparent than in the housing market. They're facing down their second housing crisis in 12 years.

Per Apartment List's 2021 Homeownership report, 47.9% of US millennials are now homeowners. That's up from three years ago, but it's still lagging behind other generations: At age 30, 42% of millennials were homeowners, while 48% of Gen Xers and 51% of baby boomers were homeowners by the same age.

This lag is, in large part, because of rising housing prices. Soaring home costs in the US have meant that millennials buying their first home in the US in 2008 paid 39% more than their baby boomer counterparts did 40 years earlier.

But they're also getting screwed by the availability of homes — whether or not they can actually make a purchase. As Insider's Hillary Hoffower reported earlier this year, the pandemic, an undersupply of homes, and a lumber shortage created a perfect storm for potential homebuyers in the US. Daryl Fairweather, the chief economist at Redfin, told Hoffower that there are just not enough homes in the US for millennials, America's largest generation, to buy.

What all of this has compounded into is a generation that owns fewer homes, proportionally, than previous generations did at their age; paid more for those homes, if they were able to buy at all; and now are struggling to accumulate wealth because they haven't been able to build equity through homeownership.

China's housing crisis: Everyone — and their family — is implicated

Homeownership rates in China are high.

More than 90% of households are homeowners, according to a January research paper on homeownership in China from the National Center for Biotechnology Information. The US, for comparison, has a 65% homeownership rate.

And it doesn't stop with one home: More than 20% of homeowners in China own more than one home.

But the down payment on your first property in China is high, at 30-40%, said Dr. Xin Sun, a senior lecturer in Chinese and East Asian Business at King's College London. On additional properties purchased as investments, the down payment is even higher, at 50-60%.

In her October 2020 paper, Li, the sociologist, examined how China's "new generation" — those born in the 1980s and 1990s — grew up in an era of reform. Li's research included how China's millennials study, spend, and save — and how they buy homes. Because housing prices have soared in the past decade or two, she wrote, most millennials have had to turn to personal lending networks in order to buy a home.

"In China, most of the millennial generation have to seek financial support from parents to purchase a house (or apartment) so as to start a family," Li wrote.

Sun further explained how government policies have created this pattern of intrafamilial lending: "Increasingly, the government has adopted more and more restrictive limits to market loans, towards how much money you can borrow from banks to buy properties, especially for the second and third homes." As a result, he said, people borrow money heavily from family members to make their down payments.

That's why, in a worst-case housing-market scenario in China, it's not a generation that would get wiped out, Sun said: It's families.

"Chinese families are not as separate as in the Western world, which means that for any generation to buy a property in China, it probably needs to collect money from all the family members," Sun said. "For example, for younger generations who buy properties in big cities, they need savings from the banks of mom and dad, and even the grandparents."

That means that if there were an issue in the housing market — say, a massive real-estate developer with $300 billion in debt, missed bond repayment deadlines, and strong signs of contagion risk — what would be triggered wouldn't be a wave of bank defaults. It would be a wave of personal bankruptcies spreading from individuals back to their families.

The issue is of particularly grave concern because real estate accounts for a huge part of China's economy and a huge part of household wealth. The sector accounts for 29% of China's GDP (housing accounts for about 15-18% of America's GDP). And according to Moody's estimates, 70-80% of Chinese household assets are tied to real estate, CNBC reported in August.

A wealth divide drawn along geographical lines

Experts say Evergrande is simply too big to for the government to ignore, and expect Beijing to intervene in a controlled implosion of the company. And while Beijing is expected to prioritize homebuyers when it manages the bankruptcy (largely to maintain social stability), there will still be people who pay the price of Evergrande's mismanaged and outsized, $300 billion debt load.

The differences in how families stand to be affected in China are largely drawn among wealth lines, experts said.

Households that own only one home are thought to face the greatest risk.

"People who own one home, because of high prices and low income, they have some risk," Li Gan, professor of economics at Texas A&M University and the director of the Survey and Research Center for China Household Finance at Chengdu's Southwestern University of Finance and Economics, previously told me. "For many of them, their down payment is borrowed from friends, from relatives — not from banks."

"The people who come from lower- and middle-income families, and those who bought properties more recently, they are exposed to higher risks because of the combination of lower income, lower family wealth, and higher prices they paid," Sun said.

The wealth divide also echoes along geographical divides. While more than 83% of married millennials from urban families own property, less than 27% of married millennials from rural families own theirs, Li wrote.

What this adds up to, Li wrote, is that "the intergenerational transmission of wealth inequality is increasingly exacerbated, creating an ever-widening gap between the young people from urban families and those from rural families."