With a population of 1.4 billion people, China is currently the most populous country in the world. This fact has led many people wondering why in a country so densely populated are an estimated 50 million apartments sitting empty. New research is being published by Professor Gan Li, of Southwestern University of Finance and Economics in Chengdu, that shows around 22 percent of urban housing in China sits unoccupied.

In an effort to keep supply low and demand for homes high, the government has allowed housing developers to over-build and then sell the unused homes to the government. This keeps the appearance that the housing market favors sellers. In a seller’s market, home prices are high and the supply for homes is low. Since so many of the homes remain vacant, this seriously clouds the real state of the housing market in China. If the trend continues and homeowners become nervous and try to sell, China could be facing one of the biggest housing market collapses in history.

Here’s a run-down of how this appears to have happened and what it means for China’s economy.

The biggest potential housing crisis in history

With over 50 million homes sitting empty, this has created a huge crisis for China’s economy. In the U.S., our economic barometer is primarily the stock market. In China, it has long been its housing market that shows the strength of its economy. In the U.S. typically 28% of assets are tied to homes while in China that figure is closer to three quarters. The dilemma with these figures is that if masses of people panic and try to sell their homes, home values will take a nose dive and in turn, so will peoples inflated sense of wealth. Consumer spending and confidence also goes down and this ripples negatively through the economy.

Part of the research included in the China Household Finance Survey that is run by professor Gan shows that this vacancy number may even be higher than 50 million units. The vacancy rate doesn’t include houses that are vacant but on the market and haven’t yet been sold by developers. Some of the vacancies come from people who have either migrated away from their homes in search of other work or people who have purchased multiple investment opportunities or vacation homes. The country has tried to deter people from buying multiple properties in the past without much success.

Another problem with the current situation is that when you have too many vacancies, supply gets affected and prices remain unattainable for young, first-time home buyers. Inflated home prices are keeping new, younger buyers from entering the housing market. To keep supply low and home prices high, the government has been continuing to purchase unsold homes. These homes then sit vacantly and the market reacts as though there is a low supply of homes. If home buyers start to worry about the number of vacant homes and try to liquidate them, China could experience the biggest housing crisis in history. This would make the 2006 housing crisis in the United States look like a small hiccup.

The cover-up

To help fight the housing bubble, China has to reflate the bubble every few years to maintain stability in housing prices. By buying up unsold homes, building more and then purchasing them in developing areas, China gives the market the feeling of stability and low supply. Housing prices stay high, demand goes up and it appears as though there’s a shortage of available homes on the market. When houses are then re-sold, the values stay high or sell for even higher due to a pent up demand. The recent research, however, has shown that this is more of an illusion than the reality.

The reality remains 50 million of the homes out there not for sale are actually vacant. To further try and stave off the current state of affairs, the Chinese government have tried to limit the amount of credit available. They’ve also put buying restrictions in place and limit the number of homes you can purchase.

Part of the reason the government buys surplus housing is for China’s Housing Ministry. The Ministry works to use surplus homes built by developers as housing for families in villages or city streets that have been condemned. The homes are supported and backed by government lending. While this strategy provides homes to those in need, it also helps housing developers who wouldn’t otherwise have enough buyers and falsely lifts the housing market.

The growing debt dilemma

To further the problem, when young adults try and enter the housing market, they often are chasing home prices they can’t afford. Overpriced homes coupled with going into debt on homes you can’t afford is never a good mix. Being house poor and strapped with too much debt is another source of panic for many Chinese homeowners. Currently, mortgage debt put into homes accounts for over half of the household debt in China. That figure is estimated to be 46.2 trillion yuan or 6.8 trillion U.S. dollars. Homes in China are looked at as a status symbol. When there aren’t a lot of homes for sale on the market, these symbols of wealth become even more valuable.

While there are currently over 50 million uninhabited homes and apartments in China, this number doesn’t include a large amount of government-owned housing. If those were accounted for, this number would be far greater.