Background of the Study
In her analysis on metropolitan development Dwyer (2007) states that higher status populations tend to occupy new housing developments within metropolitan areas while lower-status groups tend to be restricted to older housing (Dwyer 2007, 23 – 24). What must be understood is that the current trend in the construction of new houses, apartments, etc. within various metropolitan areas is a mechanism for the perpetuation of inequality and segregation between high and low-status populations (Dwyer 2007, 23). This can be seen in the case of Qingdao city within Shandong province in China wherein the local real estate market is set between distinct class lines wherein advantaged groups of individuals typically occupy newer housing developments within various exclusive housing communities, suburbs, apartment complexes, etc. while lower-income families/individuals typically occupy the older areas within the city or less developed suburbs.
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As Dwyer (2007) explains this particular system of housing stratification operates under various forms of inequality with inequalities in income being the most prevalent reason behind the stratification (Dwyer 2007, 23). It must be noted that in the case of China the current trend in housing development is increasingly following the historical precedent set by the United States nearing the end of the twentieth century wherein the construction of various housing projects tended to target the affluent as inequality within the country rose. As stated by Dwyer in her examination of U.S. Census Bureau statistics as inequality grew within the U.S. near the end of the twentieth century a clear trend was seen as the construction of housing projects increasingly targeted the affluent further stratifying and segregating the U.S. housing market at the time (Dwyer 2007, 23 – 46).
The end of the 20th century (1990 – 2000) is a significant period to take into account since this period represents an era of growth and development for the U.S. which is similarly occurring in China due to the current prevalence of the outsourcing industry. As noted by the recent news of China becoming the world’s second-largest economy, the outsourcing industry has greatly improved the Chinese economy within the past 2 decades resulting in not only the rapid development and expansion of various urban centers but the creation of an increasingly prevalent Chinese upper class. Based on the research on Dwyer (2007) the case similarities between what occurred in the U.S. and what is occurring in China at the present are quite similar with various housing projects increasingly catering to the new upper-class society developed within the country as a result of economic prosperity.
On the other hand, it must also be noted that due to the nature of the outsourcing industry wherein companies increasingly outsource their means of production to China due to the low price of labor this means that the salaries of a majority of ordinary workers within the country are also quite low. With the current trend in China reflecting that of the U.S nearing the end of the twentieth century this means that the various housing projects within the country are increasingly being developed to cater to either advantaged or moderately advantaged families/individuals with prices that few low-income families/individuals could afford due to the inherently low salaries of a majority of Chinese workers today.
The area to be researched for this dissertation is the city of Qingdao located in Shandong Province, China. An examination of the city of Qingdao reveals it to be ranked number 10 in a list of China’s top 20 cities with a GDP of US $42.3 billion. The creation of numerous special economic and free trade zones within the general area has resulted in a virtual boom in foreign direct investments into the city in the form of various off-shored and outsourced factories and services increasingly being placed within the city by Fortune 500 companies due to the combination of low wages and high economic incentives (Brown 2010, 30). Not only that due to its status as a port city this has resulted in a greater degree of foreign manufacturers placing their facilities within the city due to the advantage of having their manufacturing facilities located near an easily accessible port (Brown, 2010, 30).
When investigating the case of Qingdao city what must be taken into consideration is the view presented by Dwyer (2007) regarding the U.S. housing market during the latter patter of the twentieth century and see whether there are similarities between the case of the U.S. and China and analyze whether the local real estate market in Qingdao reflects the perceived trend that Dwyer (2007) states should be occurring in the local housing market during periods of increased prosperity. This means investigating whether there is a significant degree of development stratification between housing projects meant to be affordable for lower-income families/individuals or if the majority of development projects are focused more on higher income thresholds. If the views of Dwyer (2007) are proven to be correct in this case, in that there should be a significant degree of development stratification present occurring between projects for higher and lower-income thresholds, this would in effect create problems for the perceived practicality of housing development and settlement upgrading for low-income residents within the Qingdao area.
The reason behind this is simple, the practicality of housing development and settlement upgrades for low-income families within the Qingdao area would not seem practical at all if the current trend in housing development is leaning more towards the development of different types of housing suited for high to moderate-income thresholds. If current trends are leaning more towards the development of high/moderate properties as Dwyer (2007) states should be occurring at around this current period then it is highly unlikely that Qingdao city will become a location for low-cost affordable housing or that subsequent settlement upgrades will occur.
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While it may be true that Qingdao has the distinction of being the most “livable” city in terms of the estimated per capita income of its residents currently estimated at $7,616 the fact remains that this level of income does not reflect the amount made by low-income manufacturing workers who are currently prevalent in several of Qingdao’s manufacturing and special economic zones. The average wage of workers in those factories is likely far lower than the city average and as such would contribute to the possibility of a trend in real estate stratification currently occurring within the city.
The general objective of the present study is to analyze the current real estate market in Qingdao and determine whether the trend in housing development during periods of development and prosperity, as stated by Dwyer (2007), is currently occurring. If it is this represents a problem for any future housing development and settlement upgrading for low-income residents due to the focus of most real estate developers towards high/moderate housing development projects.
This study proposes to move past merely evaluating the impact of the Dwyer (2007) trend in housing development and will examine, at depth, how the current housing boom in China, specifically in the Qingdao region could result in a potential housing bubble burst as seen in the case of the U.S. during the later part of the twentieth century and in Spain during the first decade into the 21st century, both of which occurred following a boom in real estate development which focused on the development of projects following the Dwyer (2007) trend of focusing on high/moderate-income housing development projects. As such this study will also focus on the factors that led to their occurrence and will see whether they apply to the current case of Qingdao resulting in the need to change current development practices to suit lower income thresholds as well.
The following will be the specific objectives of the study:
- To develop an understanding of the Dwyer (2007) trend in housing development and how it applies to the practicality of low-income housing developments.
- To develop an understanding of how a multiplicity of factors contribute to real estate development during periods of prosperity.
- Analyze the connection between periods of growth and their distinct connection towards the Dwyer (2007) trend.
- Determine the possibility of a housing bubble collapse occurring in China as a result of past precedents in real estate development that have developed as a result of the Dwyer (2007) trend.
- Formulate recommendations to prevent or reduce the possible damage as a result of a possible housing bubble collapse in China, specifically in the Qingdao region.
The researcher will analyze the real estate market of Qingdao City with specific reference to the practicalities of housing development and settlement upgrading for low-income residents utilizing the following research questions:
- Is there currently a trend in the Qingdao city which follows the trend in the U.S. housing market seen in the latter part of the twentieth century?
- To what extent are the problems associated with the practicality of developing low-income housing due to the prevalence of the Dwyer (2007) trend.
- Are the factors associated with the U.S. and Spanish housing bubble burst evident in China, specifically in Qingdao city?
- If so, what can be done to reduce/prevent significant damage from occurring?
Significance of the Study
The value of this study is its potential contribution to understanding the relationship between periods of prosperity, stratification in real estate development, and the potential these factors hold in causing real estate bubbles which tend to collapse as seen in the case of the U.S. and Spain. While there have been many studies that have examined the collapse of real estate markets in the U.S. and Europe few studies have examined any significant collapse in the real estate market within China.
The reason behind this is because it was only within the past two decades that China’s real estate market took off and developed as a direct result of the government initiatives in improving China’s economy which resulted in not only the country becoming an international behemoth in term of the number of products exported but also makes it one of the main destinations for international companies seeking to lower their cost of production by having their methods of production transferred to China (Economy 2010, 7).
It must be noted though that as mentioned earlier the case of the Chinese real estate market is increasingly following the same pattern as seen in the U.S. and Spanish housing booms during the late twentieth century and early twenty-first century respectively. While such a housing boom is supported by China’s ever-increasing economy the fact remains that due to the historical precedent of countries that followed similar patterns in real estate development as seen in China today it can be assumed that the Chinese real estate bubble will burst eventually. As such what is needed is to determine what factors will contribute to the most towards this eventual event and recommend methods of mitigation to dampen the effects of the eventual bubble bursting.
Overall, the data collection process is expected to be uneventful however some challenges may be present in collecting demographic data associated with the number of low-income individuals/families within the Qingdao area as well as the types of housing developments that are currently being developed there. While the internet should prove to be a great resource in determining the kinds of housing projects currently being constructed within the general area it is expected that the data collected utilizing this method would be incomplete due to the nature of housing developments and the fact that not all companies post their current developments online. Challenges are anticipated in properly accessing accurate records about all recent real estate development occurring within the area as well as certain language barriers in translating the data accurately from Chinese into English.
Analytical Framework/Review of Related Literature
Introduction to Literature
This section reviews and evaluates literature and theories on trends in real estate development and stratification, the practicality of low-income housing, as well as factors associated with housing bubble bursts. The literature in this review is drawn from the following EBSCO databases: Academic Search Premier, MasterFILE Premier; as well as J store and various internet sources when applicable. Keywords used either individually or in conjunction include real estate, development, stratification, prosperity, low income, advantage, disadvantage, China, U.S., period, Qingdao, outsourcing, and market.
Real Estate Stratification
Similar to the view of Dwyer (2007), Conley (2001) states that housing plays a distinct role in the system of social stratification in that it is stratified along dimensions of socioeconomic status and race (Conley 2001, 263). What must be understood is that based on the combined data from Dwyer (2007) and Conley (2001) it is evidenced that as countries enter into periods of economic prosperity there is a tendency for housing developments to favor high to moderate-income buyers rather than those from low-income thresholds (Dwyer 2007, 25)(Conley 2001, 264).
In her examination of the U.S. real estate market from the 1950s to late 1990s Dwyer (2007) notes that as the economy of the U.S. progresses and expands so too does the size and price of the average house (Dwyer 2007, 25). From the mid-1980s to 2000 houses began to have more amenities ranging from grand entryways, elaborate kitchens, balconies, larger living rooms, etc. As a result this directly affected the price of the house itself resulting in new housing developments increasingly going towards social classes that could afford to buy homes at such a high price while isolating lower-income individuals to purchasing either older homes in less reputable areas or having the inability to purchase a home at all (‘Ripple Effect of Housing Prices Fluctuations among Nine Cities of China 2010, 41 – 42).
This sudden trajectory in distinct increases in house size is noted by Fischer et al. (2004) as being due to the increased amount of affluence of individuals/families within the U.S. during the period of economic growth noted during the 1980s towards the latter half of the twentieth century (Fischer et al. 2004, 37 – 38). Such a trend is similarly occurring within China as a direct result of the increased affluence and the creation of a new urban elite that developed as a result of China’s economic successes. The home’s throughout the country, particularly in the top 20 cities within the country such as Qingdao, have begun to reflect a similar trend as seen in the real estate development in America during the 1980s to 2000 wherein homes have become larger, more luxurious, contain more amenities however as a result has become more expensive.
What must be understood in this particular case is the fact that real estate developers often follow trends in a housing development that ensure the greatest amount of profit. As seen in the case of America and right now in China this means making homes larger, installing better amenities, and making them more appealing to buyers from the rich elite that have prospered as a direct result of the country’s economic prosperity. In the case of low-income housing development within popular metropolitan centers such as Qingdao, few developers choose to break away from the trend resulting in not only a significant reduction in the number of low-income housing developments but an increase in the degree of social and real estate stratification within the general area as a direct result of trends in home construction.
Government Intervention in China’s Housing Market
In their examination of China’s urban policy, Jian –Ping & Zheng Hong (2008) explains that as of 2004 China’s housing policy has entered into a distinct adjustment period as the central government attempts to take macro measures to regulate the urban housing market (Jian-Ping & Zheng Hong 2004, 283). The reason behind this is simple, as the current trend in the housing market continues with more developers targeting individuals from high to moderate-income levels this has the effect of increasing the rate of real estate development as seen in the case of the U.S. and Spain during the respective periods leading up to the collapse of their housing bubbles. With housing development further heating up and integrating into China’s economy this situation holds the potential for possible economic stagnation or recession once the proverbial “bubble” pops.
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What must be understood is that as seen in the situation of the U.S. before the end of the 20th century, in the case of Spain during the start of the 21st century, and as it can be seen right now in the U.S. real estate market the potential for oversaturation exists when unmitigated construction is allowed to occur which focuses on enticing consumers from high to moderate economic classes. What is needed in such cases is the development of long term housing development plans with greater local government control that ensures that housing meets the needs of all urban citizens and not just a select few. This means guaranteeing low income and special urban groups similarly affordable means of housing near metropolitan areas to prevent market saturation towards a particular consumer group. What must be understood is that the practicality of housing development and settlement upgrading for low-income residents during a period of high economic growth and development can only occur when there is a distinct amount of local government control over the housing developments within a particular area. Lack of control in this particular aspect would result in developers creating homes targeting high to moderate economic groups due to the high profits that they can obtain from such ventures.
While this particular trend changes significantly during periods of low economic growth and stagnation the fact remains that due to China’s current status as the world’s second-largest economy and the fact that it is foreseeable that its economy will continue to expand shortly it is safe to assume that trends in housing development within China will continue to follow the Dwyer (2007) trend of housing development provided that sufficient local government controls are not in place to mitigate it.
Brown, AS 2010, ‘MANUFACTURING AT THE CROSSROADS’, Mechanical Engineering, 132, 6, pp. 30-34, Academic Search Complete, EBSCOhost, Web.
Conley, D 2001, “A Room with a View or a Room of One’s Own? Housing and Social Stratification”, Sociological Forum, 16, 2, pp. 263 – 280.
Dwyer, R 2007, “Expanding Homes and Increasing Inequalities: U.S. Housing Development and the Residential Segregation of the Affluent”, Social Problems, 57, 1, pp. 114 – 137.
‘ECONOMY’ 2010, Beijing Review, 53, 33, p. 7, Academic Search Complete, EBSCOhost, Web.
Fischer, C, Gretchen S, Stiles, J, and Hout, M 2004, “Distinguishing the Geographic Levels and Social Dimensions of U.S. Metropolitan Segregation, 1960–2000.” Demography. 41, pp. 37–59.
Jian-Ping, Y, & Zheng-Hong, W 2008, ‘Urban Housing Policy in China in the Macro-regulation Period 2004-2007’, Urban Policy & Research, 26, 3, pp. 283-295, Academic Search Complete, EBSCOhost, Web.
‘Ripple Effect of Housing Prices Fluctuations among Nine Cities of China’ 2010, Management Science & Engineering, 4, 3, pp. 41-54, Academic Search Complete, EBSCOhost, Web.