Affordable housing: China

Urban ambitions

17 April 2015

Dr Albert Cao and Professor Ramin Keivani outline their RICS research into China's massive affordable homes programme

The Chinese government is carrying out the world's largest housebuilding programme for the country's low to lower-middle income urban households. From 2011 to September 2014, a total of 32.1 million units of affordable and social housing (ASH) were started, with 20.6 million units completed. In the first 9 months of 2014, RMB1.07 trillion (£107bn) was spent, with 7.2 million units started and 4.7 million completed.

Urban poor

Four factors have powered this great drive in ASH provision. First and foremost, it was a response to the tens of millions of urban households in poor housing conditions. Before the 1990s most of the urban population was provided with public rental housing but the system experienced a transition from state-dominated to market-dominated provision in the 1990s, a process referred to as housing reforms. The blueprint, enacted in 1994 and refined in 1998, set a 3-layer system:

  • The first layer comprised market housing for the rich and well-off.
  • The second was affordable housing for sale to the middle class with modest incomes.
  • The third layer was subsidised public rental housing, or social housing, for the poor to rent.

In the marketisation of housing provision after 1998, however, the blueprint was not adhered to, leading to low levels of affordable housing to buy and little social housing to rent being built.

From 2000, housing price inflation accelerated and even middle income households were priced out of the market in major cities. Low and lower-middle income households saw a relative decline of housing standards after 2000, which generated discontent and became a political issue. In 2006, the central government sought to change the structure of housing supply, which was biased to the high-end market, and in 2007 allowed large-scale public provision of affordable housing to buy and social housing to rent.

From 2000, housing price inflation accelerated and even middle income households were priced out of the market in major cities

The change in housing policy from 2006 has placed subsidised renting at the core of the ASH regime. Low rent housing (LRH), a form of social housing, was given priority. Previously, Economic and Comfortable Housing (ECH), first available from 1994, had dominated. The process required beneficiaries to buy the units but was beyond the reach of low income families, and often captured by government agencies as housing benefits to their employees. Corruption also led to well-off households accessing ECH, reducing its availability to middle income households.

The 2007 policy redefines ECH with a maximum size of 60m2 to discourage wealthy buyers, and allow local governments to provide limited price housing (LPH) that are sold at much smaller discounts to reduce subsidy to buyers.

To help middle income households that are unable to buy, public rental housing was rolled out in 2010, let at affordable rents for fixed terms of 3 to 5 years. From 2014, LRH and PRH have been merged to streamline management and remove the stigma attached to LRH. The rapid expansion of ASH stock creates surplus, forcing many cities to ease entry restrictions, contributing to rising housing standards for the urban poor.

Economic growth

The programme of building over the past 5 years was also, in part, designed to boost economic growth threatened by the general slow-down, and housing market in particular in 2010. This was caused by macro control to curb housing demand and thus house price inflation. As the economy slowed further, the government tabled another programme to build 10 million units of redeveloped and improved housing (RIH) from 2013 to 2017.

Designed for families living in substandard accommodation but unable to improve their housing conditions, RIH became a vehicle in 2009 to combine housing redevelopment and upgrade, and has dominated the ASH regime since. For example, among the 32.1 million units of ASH new starts from January 2011 to September 2014, RIH accounts for 15.54 million. With financial support from central government, local governments conducted large scale clearance and rebuilding of dilapidated and substandard housing.

Clearance programmes have included urban villages that were incorporated into city boundaries without improvement to infrastructure and services. The lack of proper planning and building regulation control had led to overbuilding by owners who sought to benefit from the rising demand for home and shelter. Such villages became a concentration of substandard housing, home to many low income families, particularly migrants who normally take low-paid jobs and are unable to rent or buy in the housing market.

These clearance programmes inevitably have regressive social impacts of dislocation of settled communities. Nevertheless, they have also helped to improve greatly the general standard of housing in Chinese cities and raise the standard of living of their occupants.

Speeding up urbanisation

Increased supply is conducive to break the restriction on migrants' access to ASH, imposed by China's household registration system and reinforced by a shortage of such homes. With nearly all of the qualified registered households being accommodated by ASH, local governments in China have started to offer ASH to migrants who have been resident for a number of years or obtained jobs.

...the rapid increase of supply of ASH in many small to medium cities can be used to accommodate rural migration to speed up urbanisation

For example, Wuhan, a major city in central China, has provided PRH access to migrants with secured jobs, i.e. jobs with formal employment contracts. Other cities such as Beijing, Dongguan, Kunming and others also allow migrant workers in their latest PRH provision.

However, availability is still very limited and many rural migrants find it hard to obtain secure employment. In July 2014, the government tabled its new urbanisation policy, which includes lowering the threshold of household registration in small to medium cities to absorb migrants from the countryside. After becoming registered households, migrants are entitled to apply for ASH.

Thus the rapid increase of supply of ASH in many small to medium cities can be used to accommodate rural migration to speed up urbanisation.

Efficiency concerns

The huge rise in ASH provision, however, raised concerns on efficiency and management, with problems of funding, planning, design, construction, distribution and administration.

In our recent research More doesn’t mean better: inefficiencies in China’s affordable and social housing sector, we gathered and examined evidence of inefficiency and investigated its causes in Guangzhou and Wuhan.

  • We found the lack of a sustainable funding mechanism for the central government to support local governments for ASH construction results in under-financing of many projects. This leads to housing being built at less favourable locations to economise on land costs, with low budgets for construction, and with a lack of public infrastructure, at least in the early years. This is the main reason for empty units in ASH estates.
  • Second, pressure on delivery targets imposed on local governments has led to the development of large and often remote ASH estates to meet targets. This creates significant management problems due to the concentration of low income households in remote locations that can also lead to potential future problems of social cohesion and integration.
  • Third, the lack of legislation and statutes on ASH and delineation of rights, a responsibility of the central government, leads to insufficient authority being given to local governments in ASH administration, with implications for estate management. Management often found they did not have sufficient authority to execute their duties.
  • Fourth, in spite of some progress, exclusion of migrant workers from ASH is still widespread in Chinese cities, leaving units vacant while migrants have to endure overcrowded housing conditions.
  • Fifth, there is a lack of management systems, such as credit checks, eviction and exit, in China's ASH management regime. It is very difficult to remove someone with anti-social behaviour and force income ineligible occupiers to leave.
  • Finally, lack of competition and alternative ASH provision reduce choices and satisfaction among occupiers. Discussion with ASH residents found although they were happy with the new high-rise housing units, they would like to live closer to where they work or to socialise as they did in the past.

Some were not happy with the management style of their housing estate. We believe provision by a sector different from local governments and market operators will greatly enhance choices and competition among the ASH sector.

Future directions

Progress in reforms to raise efficiency has been observed. The development of large ASH estates is being replaced by small estates and mixed communities, with market housing projects obliged to include a percentage of ASH. To reduce the amount of subsidy and to prevent capture by non-targeted population, local governments are experimenting with shared ownership housing as a new form of affordable housing. Some local governments, such as Wuhan, carried out en bloc renting of private housing as PRH to speed up delivery and streamline management.

The huge rise in ASH provision, however, raised concerns on efficiency and management, with problems of funding, planning, design, construction, distribution and administration

This practice could be a solution to the glut of market housing currently experienced by some cities, to make use of the vacant housing stock. The development of construction, distribution and management information systems by many local governments are also useful in increasing efficiency of construction, distribution and management.

The Urban Housing Security Ordinance, the national statute drafted by the central government, was in public consultation in March and April 2014. Although the Ordinance still falls short of addressing all the inefficiencies, its enactment provides a more secure legal basis for ASH provision in China.

Our research found officials and management staff working on ASH provision and management in Guangzhou, Wuhan and Shanghai were open-minded, and ready to embrace change to increase efficiency. They were hard working and dedicated against the odds despite not being in a sector that generates profits. This is a promising sign for the Chinese ASH to grow and to improve to achieve the target of covering 20% of the 700 million plus urban population with housing security.

Dr Albert Cao is a senior lecturer and Professor Ramin Keivani a lead researcher at Oxford Brookes University Department of Real Estate and Construction

Further information

Related competencies include:

This feature is taken from the RICS Land journal (March/April 2015)