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From Ants to Tenants

Can Beijing’s experiment provide a new solution for China’s housing market?

By NewsChina Updated Nov.1

Two villages with about 3,000 inhabitants in Tangjialing, on Beijing’s northwestern urban fringe, became famous in 2009 when the plight and dreams of many low-income young college graduates who lived crammed in dark, dirty bedrooms in multi-story houses built by local villagers were illustrated in a book.  

The author, Professor Lian Si with the University of International Business and Economics, dubbed the group the “ant tribe,” and used the neologism as the title of the book about his research. The term has since been widely used to refer to all low-income groups working in big cities and living in crowded rental rooms on the urban fringe. The houses in Tangjialing were demolished the following year to pave the way for a trial rental housing project initiated by Beijing’s municipal government. As rental residential housing on rural land for urban tenants was illegal, the project was made possible by securing special approval from China’s Ministry of Land and Resources. 
Few predicted the project would be a part of and signify a turning point for the country’s housing policy. It attracted a lot of media attention again recently because rental housing on rural land zoned for construction would be promoted in a trial in 13 cities around the country, and probably extended to all cities in the future if the trial is successful. The context of this new policy is that China is encouraging households to rent, rather than buy apartments to curb speculation in the real estate market. Since August, governments of a number of medium- and large-sized cities have declared measures to provide more rental housing and local public services to tenants from which they used to be excluded.  

Rental housing for residences on “rural construction land” has remained a gray market in China for more than three decades, as only factories, rural facilities and housing for local rural households are allowed to be built on such land. Now the role of rural land in China’s urban rental housing market has not only been officially approved, but will be expanded.  

In Beijing, most of the 500,000 units of rental apartments in the next five years will be built on rural construction land. Trial development was launched in five rural areas in Beijing starting in 2011, which would supply 12,800 housing units by the end of 2017. Thousands of new tenants have already moved into newly-built apartments in three of the five areas since May 2017, including Tangjialing, according to Beijing’s municipal housing authority. This experiment in China’s capital and one of its biggest cities may shed light on how the process of turning “ant caves” into decent residences and how municipalities can become a potential big player in China’s housing market.  

The Poor and the Professionals 

According to an announcement from Beijing’s housing authority in July, the five trial projects aimed to provide affordable rental housing for low-income groups and professionals in startup companies.  

Wang Haihua, 57, is one of the nearly 900 tenants to have moved into the new rental apartments in Tangjialing by mid-September. The whole area is slated to provide more than 2,100 apartments, the Beijing Daily reported in May. Wang lives alone in a 40-square meter studio apartment, with a bathroom and kitchen. It is clean and bright. He lives on a subsistence allowance, a cash handout by the government to households whose per capita income is below the local subsistence allowance standard, and this means he has subsidized rent. He told NewsChina that he pays no more than US$16 a month for the rent, plus utility bills. His contract lasts for three years, with renewal contingent on a new eligibility review. 
The government of Haidian district, where the blocks are located, leased the apartments at market price from local villagers who own the land collectively. It then re-leased the apartments to eligible households at a discount. The shortfall is covered by subsidies. Applications for affordable rental housing are reviewed by standards of household income and existing living space, as well as record of working in Beijing if the applicant does not hold a Beijing hukou (residence permit). 
The largest of the three trial projects is located in Chaoyang district in the east of Beijing. More than 3,200 apartments are already built, with 1,900 rented out, said He Jianfeng, vice general manager of the developer held by the local rural county called Pingfang. Tenants have to be low-income groups with no apartments. They can also apply for subsidies at different levels for their rents.  

Another rental housing project on rural construction land is also in Haidian district, although the tenants in Wenquan Township are quite different from those in Tangjialing and Pingfang county. They are young professionals who have started their own businesses or work at other startups, and are similar to the previous “ant tribe” of college graduates. Tenancy contracts for 1,100 units have been signed so far. There are 2,772 units available, said Yin Luming, chief liaison officer of the company operating the Wenquan project, another collective held by local villagers. He explained that applicants have to submit their business licenses and business plans to the company. Their business has to be in at least one of the 10 hi-tech sectors that have been identified by Haidian district government, which can be in electronics, biotech and new pharmaceuticals, as well as aerospace and astronautics.  

Tenants there also receive government subsidies, up to 50 percent of the rent. Besides, the company operating the project has forged cooperation with hundreds of service providers for hi-tech startups, including technology service suppliers, business startup investment institutions, business incubators and research institutes, according to Diao Jianming, chief marketing officer of the company. He told NewsChina their ambition is to position the town as a major base for hi-tech business startups in Zhongguancun, one of the cradles of research and hi-tech companies in China.  

Tenants now have similar access to schools for their children as homeowners in the same area. This new policy also covers those living in rental housing on rural construction land approved by the government. Such measures to encourage a rental housing market on rural land have also been adopted in many other cities.  

Many Stakeholders 

Each of the projects involved hundreds of millions of US dollars of investment, and it will take a long time before the huge investment can be returned. He Jianfeng with the Pingfang developer told NewsChina that it would take 15 to 20 years before the US$164 million investment can be returned. Miao Leru, vice chairman of the China Real Estate Association, explained to NewsChina that affordable rental housing for low income groups needed a much longer time to return the investment than housing for sale or high-end rental housing.  

Besides funds from these villages and bank loans, rent is a major source of finance for these projects. The rent for the first three years has already been paid in advance by Chaoyang and Haidian governments. Indeed, the stable rent collection makes such projects attractive, He Jianfeng said. All five trial projects in Beijing are either near Zhongguancun or the central business district, where commuters have huge demand for rental housing with easy access to their workplaces. Moreover, Miao suggested that policies concerning bank loans and taxes be designed to help finance and operate such projects.  

Local villagers involved in these projects have joined collective economic entities, typically called cooperatives. According to a June report by Guangdong-based newspaper The Time Weekly, Tangjialing villagers get rental income according to their stake in the cooperatives, which are in turn based on their share of construction land in the village. Some of the new apartments have been given to villagers. If their own new apartments are leased by the government for re-rent, then they can also get this rent. Yin with the Wenquan developer told NewsChina that the growth of the entrepreneur startup community will generate a lot of value for cooperatives. Miao pointed out that local villagers need to learn how to protect their own interests and provide services for tenants through their cooperatives or other economic entities after becoming shareholders in these entities.  

Professor Dang Guoying at the Rural Development Institute of the Chinese Academy of Social Sciences thinks the new policy of allowing, and even encouraging rental housing on rural construction land is “retroactive consent” for the practice that started in the early years of China’s Reform and Opening-Up in 1980s, and which has boomed since then. Local governments typically neither supported nor intervened in the gray market over the years. In the recent policy initiatives and local experiments in rental housing on rural land, the land is still owned by local villagers collectively, instead of being changed into State-owned urban land. As a result, there is a link between the rural and urban land markets which used to be separate.  

This is probably why there is an expectation that the trial precedes a fundamental reform of China’s land system, making rural construction land as tradable as urban land. However, Dang regards the current change of policy as more a “small crack” than a “breakthrough” in the existing land system, as “housing built there is still not for sale.”  

Indeed, for years, there has also been a big gray market where rural residences have been sold to urban buyers. The ownership of buyers is not protected by the law in these deals. The recent trials on rural rental housing have aroused speculation that the restrictions would be relaxed, while the government has already made clear that the trials have nothing to do with rural housing being for sale.  

There are also concerns over the much more complicated interests in the new rural rental housing market. In the previous gray market, villagers and their tenants negotiated with each other over informal agreements, with tenants in a disadvantaged position. Now the government, rural economic collective entities and possibly urban developers will join, and the rights of tenants are officially protected. The rights and obligations of each stakeholder are yet to be clarified. This is one of the tasks listed in the plan for the trial in the 13 cities issued by the ministries responsible for land and housing at the end of August.  

No matter how the rental housing on rural land will be developed in the future, dark caves for the “ant tribe” are definitely not the choice. “The housing must be designed to cater for families,” said Dang Guoying, adding that more migrant workers would bring their families to cities where they work.  

The experience of the new tenants in Tangjialing and the other similar projects in Beijing could well be the solution to providing decent homes and a more balanced housing market for all members of society.