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Economy

Dream of home ownership still eludes many Chinese

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A worker walks down a road between houses under construction in Huaxi village, in Jiangsu Province.   © Reuters

China is becoming a country of homeowners.

     More than eight out of ten urban households owned their homes last year and one in five owned multiple homes, according to a survey by Southwestern University of Finance and Economics in Chengdu. China's high homeownership rate compares with about 64% for the U.S. and the U. K. 61% for Japan and 54% for South Korea.

     At the same time, residential floor space per person in China has risen significantly in recent decades, reaching a record high of 35 sq. meters, up from just 4 sq. meters in the 1980s.

     Yet many have been left out of the long-standing Chinese ambition of "a decent home for all."  There are still hundreds of millions of people who do not have access to proper, affordable shelter in China. They live in slum-like conditions, with no hope of renting, let alone owning decent apartments given how high housing prices have rocketed.

     In Mao Zedong's time, most urban residents lived in subsidized rentals provided by state-owned work units and municipal governments. In the countryside, villagers built their own housing on collectively owned land.

     Today, the nouveaux riches live in exclusive gated villa communities or shiny high rise towers built by private developers, while millions of urban poor live in informal and illegal housing, such as boxy rooms in crumbly shacks, low-rises in dusty suburban villages and tiny dark basement dormitories.

     Property assets have become a key factor in inequality. National housing prices doubled in the first decade of the century, and in some cities like Beijing and Shanghai, they increased more than fivefold. The Gini coefficient, a commonly used measure of inequality, for wealth in China increased from 0.54 in 2002 to 0.73 in 2010; by comparison, the Gini coefficient for income was still just 0.47 in 2014.

Investing in social housing

Recognizing the extent of the inequality problem, in 2007 China began implementing an ambitious reform program, with massive investments in the development of so-called "social housing."  The program seeks to ameliorate poor housing conditions through measures including low-cost rentals, subsidized homeownership and resettlement for those displaced in shantytown redevelopment.

     More than 5 million units of social housing were built in 2010. Another 36 million are to have been built in the five year period that will end next month. The national quota has been divvied up among local governments. This stock is intended to house some 20% of urban residents.

     Fiscal support for social housing has increased rapidly, from 10 billion yuan ($1.57 billion) in 2007 to 380 billion yuan in 2012. Earmarked grants from the central government, bank loans and bonds from state-owned enterprises to finance social housing have also increased significantly, alongside land supply allotted for social housing projects,

     As a result, by 2012, the program had addressed the housing needs of 31 million urban households or 12.5% of the total. Another 5 million households benefited from rental subsidies.

     For sure, the central government's plan was a bold one. Yet its top-down approach did not secure the wholehearted commitment of local governments to social housing.

     Focusing on fulfilling mandated quotas, local governments often develop and allocate social housing for purposes other than sheltering the poor, such as attracting talent and resettling households displaced during urban development.

     More importantly, the social housing program generally excludes migrants who do not have urban residential permits, or hukou, under China's household registration system. In 2010, migrants accounted for more than one-third of China's urban population and more than half of the total population in the cities of Shanghai, Beijing, Shenzhen and Guangzhou.

     Despite significant increases in minimum wages and migrant workers' rights in recent years, they remain on the whole at the lowest rungs of the social hierarchy. Only about 10% of migrants own their city residence. Given their large volume and the lack of affordability of decent housing, it is morally and politically unjust to exclude migrants from the social housing program.

Doing more for the poor

The government can and should do more to help the poor, especially the migrants whose move to the cities underpinned China's economic miracle.

     The government can start by legitimizing the informal housing sector. In Chinese cities, this largely comprises the stock of housing rented temporarily to migrants and other urban poor. These residences are affordable because they tend to be in poor condition, as the assumption is that they will eventually be demolished to meet urban expansion and renewal goals.

     Municipal governments should focus on preserving and improving the places where the poor and migrants currently live. They can do this by offering land and housing security to owners of informal housing and by providing infrastructure and public services in these poor neighborhoods along with financial aid to help owners to upgrade housing conditions.

     Another problem is that a huge stock of urban housing is unoccupied, with urban vacancy rates exceeding 22% in 2013, compared with recent figures of 13% in Japan, 4.7% in Hong Kong and 2.5% in the U.S. The government can lessen this problem by introducing a property tax on second homes. With considerable property-price appreciation in the past two decades, housing has become a main channel for household investment. Due to the lack of a property tax, the cost of maintaining second homes is relatively low, so homeowners often do not bother to lease out their additional properties. Housing units above a certain size, say more than 50 sq. meters per capita, should be taxed to discourage excessive housing consumption and reduce resource waste.

     Under the current system, private developers are pressured into participating in the social housing market. Due to municipal governments' monopoly on land provision, developers have to take up such projects if they want to access urban land.

     Yet they have a number of methods to evade these responsibilities. The system would work better if developers were given enhanced incentives to voluntarily participate in social housing programs, such as low-interest loans or faster permit approvals. With the slowdown of the housing market and lower profit margins in the built-for-sale market in recent years, developers may be more motived now to invest in the rental sector for lower but stable profits.

     In addition, specialized companies and nonprofit organizations should be encouraged to develop and manage affordable housing. Cooperatives in continental Europe, housing councils in the U.K. and community development corporations in the U.S. all have played important roles in providing and managing affordable housing

     Beyond improving the stock of affordable housing, the government can improve its policy design and management of social housing.

     Housing is ultimately local. Only local governments know the amount and type of housing needed for the poor in their cities. Each municipality should be required to analyze its own housing demand and supply, considering its demographic and socio-economic conditions.

     Instead of mandating a specific number of housing units, broader housing and social goals such as social and economic inclusion and poverty reduction, should be set for each city, which could then be required to develop a plan to achieve these goals. The central government can provide political and financial incentives to local governments to help them achieve their goals.

     Misallocation of housing subsidies is common in Chinese cities. A comprehensive database with detailed socioeconomic and demographic information should be the first step to making sure that only low-income households are getting assistance, with clearly defined entry and exit criteria.

     More importantly, migrants should be incorporated into the social housing program. Any social housing policy leaving out such a large segment of the poor is a failed one. Criteria should be established for migrants to access housing subsidies -- say five years' continuous residency and employment -- and for making contributions to social insurance and paying tax.

     China has set an ambitious agenda to improve housing for the poor and has committed substantial resources to the goal. But the program's success is debatable. Beijing needs to reassess its policy design, incorporate migrants into the program, give more power to local governments and include more private sector and non-government organizations in the process. Many Chinese have waited too long already for their housing dreams to be met.

Youqin Huang is an associate professor in the department of planning and geography of State University of New York at Albany.

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