As China slows down, leaders in Beijing are understandably turning to one of their favored growth stabilizers: housing. A record decline in new-home prices in January has, as my Bloomberg News colleagues reported this week, prompted Chinese officials to contemplate additional stimulus measures, including reducing the required down payments on second homes and eliminating sales tax after only two years of ownership instead of five.

And why not? To this point, various price-boosting schemes have helped China ward off the kind of downturn that befell America in the late 2000s and Japan two decades earlier. Unfortunately, though, they’re no longer likely to have the same impact today.

That’s because of a little-recognized shift in the nature of China’s property bust ― from the demand side to the supply side. As research done by Rosealea Yao of Gavekal Dragonomics shows, China’s real problem is that new construction is evaporating no matter what sales and prices do. That means the knock-on effects of additional stimulus ― on cement, steel and so on ― will necessarily be limited.

“This is a supply-side correction in property,” Yao writes in a new report. “While housing sales will likely improve this year, construction and all the industrial activity that depends on it will not. Therefore an upturn in housing sales will not deliver as much of a boost to growth.”

I checked in with Yao about which data series should frighten Beijing most: “It is floor space started,” she says. Property starts (measured in area of floor space) declined 26 percent year-over-year in December following a 35 percent plunge in November. That marks a dramatic deepening of the 5.5 percent plunge seen between January and October 2014. Also last year, parcels of land allotted for new projects slid 25 percent, a blow for highly-indebted local governments that rely on such sales.

It gets worse. Even with contingency plans to stabilize the market, “we believe China’s underlying housing demand is peaking and will soon start declining,” Yao says. That’s a problem given the current oversupply ― all those ghost cities ― which Yao estimates will require “at least another two years” to work through. In the meantime, “the traditional correlation between housing sales and indicators like steel use and construction starts will break down. In Yao’s rosiest scenario, new stimulus measures would only pump up sales 2 percent and limit the fall in housing starts to 10 percent.

One has to wonder at what cost, too. In the short run, it’s easy to understand why the government is targeting housing prices. As the experiences of Japan, the U.S. and now parts of Europe demonstrate, housing busts take entire economies down with them. But such measures ultimately make China more vulnerable to a crash. A $328 billion surge in new credit in January ― the third straight monthly jump ― adds to a debt pile that has grown to frightening proportions.

All this also contributes to unhealthy expectations among investors, who appear convinced Beijing will always step in to boost growth with new borrowing. More than stimulus, says Leland Miller, the New York-based president of China Beige Book, China needs to get serious about its stated plans to shift away from excessive investment and exports toward a more services-based economy. If Beijing decides to gin up growth artificially, Miller says, “it’s not going to work.”

Clearly, China needs to find a better balance between managing its deleveraging and fueling fresh bubbles. The People’s Bank of China should take the lead, using monetary and administrative measures to ensure that supporting growth doesn’t increase public debt. For their part, Chinese leaders could easily expend precious time searching for a new stabilizer to replace housing. They’d be far better off welcoming slower growth and getting on with the reform process to which they’ve already committed.

By William Pesek

William Pesek is a Bloomberg View columnist based in Tokyo and writes on economics, markets and politics throughout the Asia-Pacific region. ― Ed.

(Bloomberg)