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Public Properties

Amid the persistent debt crisis in the real estate sector, China looks set to launch a new round of housing reform focusing on increasing the supply of affordable housing for rent and purchase

By Yu Xiaodong , Cheng Weishan Updated Apr.1

An affordable residential building in Shenzhen, South China’s Guangdong Province

When the State Council, China’s cabinet, released a guideline on building social housing on August 26, it attracted scant attention as debt crises continued to plague some of China’s largest real estate companies.  

However, as central officials began discussing the need for a “new model” in the real estate industry, many analysts started to revisit the guideline, referred to as Document 14, which stresses the importance of increasing the supply of subsidized housing for purchase.  

Many believe it is a declaration that China will launch another round of major reforms to its housing policy.  

According to the annual Central Economic Work Conference held in Beijing by top leadership in December 2023, a major policy priority for China in 2024 will be “speeding up the establishment of a new model for real estate development.”  

“By increasing the supply of affordable housing, the goal is to accelerate the establishment of a housing supply system where the government plays the central role in providing basic housing needs, while the commercial market serves to meet more diverse needs,” reads an official explanation published by the Xinhua News Agency.  

Singapore Model? 
China’s current housing policy goes back to the reform and opening-up of 1978, when the country started to shift away from the planned economy. In the early 1980s, the government began allowing individuals to buy and sell residential properties, which marked the demise of the centrally controlled system where housing was allocated as a social benefit through your assigned employer, or “work unit” as it was known.  

Since then, the real estate sector saw widespread commercialization. Driven by rapid urbanization and increasing incomes, China’s housing market experienced soaring prices, which served as a major driving force of the country’s economic growth – and source of revenue for local governments.  

While the government continued to build subsidized housing through social housing schemes in the 1990s, the proportion of affordable residential units remained very small compared to property bought on the private real estate market. Data collected through the 2020 national population census shows that only 7.2 percent of China’s urban households lived in government-subsidized homes, either rented or bought.  

Many observers believe that the central leadership’s vow to increase the supply of social housing in recent months means a new round of housing reform, most likely based on the Singapore housing model.  

With a population of some 5.92 million in 2023, according to Singapore government data, its housing model is known for a dual-track approach. With the country’s Housing and Development Board (HDB) overseeing the construction of affordable apartment blocks, which can be 50 percent cheaper than private housing, the Singaporean government plays a dominant role in the public housing sector, with the much smaller private market meeting the housing demand of the wealthier upper classes.  

Under this model, over 80 percent of Singapore’s resident population live in HDB apartments. The wealthy city-state has one of the world’s highest homeownership rates at 89.3 percent in 2022.  

In recent years, as runaway housing prices in China created social problems such as a widening wealth gap, lack of consumer confidence and a very low fertility rate, many experts have called for the country to learn from Singapore. Figures released in early 2024 revealed that China’s birth rate has fallen to a new low, dropping 5.7 percent to 9.02 million births, at 6.39 births per 1,000 people, media reported.  

Under the mantra of “houses are for living in, not for speculation” promoted by China’s current leadership, the idea has become increasingly popular.  

Officials from several Chinese cities have explicitly vowed to follow Singapore’s housing model. In a speech delivered in August 2020, Zhang Xuefan, head of Shenzhen’s housing and construction department, said the city will learn from Singapore and that the government is striving to have over 60 percent of its urban residents live in residences either rented or sold by the government in the future.  

“The target is way beyond the current proportion of public housing,” Song Ding, a researcher from the China Development Institute, a public policy think tank, told NewsChina. “In adopting the Singapore model, Shenzhen is aiming to provide public housing for sale at a price 40-50 percent lower than private housing.”  

According to the city’s current plan, it aims to construct and acquire over one million residences between 2021 and 2027 and to have five million residents live in social housing by 2035, accounting for 26 percent of the city’s total population.  

For Sale or Rent? 
Since China started commercializing the real estate sector in the 1980s, the government launched different mechanisms to provide affordable housing, including public rentals and low-rent units, and also subsidized what it termed “economical residences” for sale. But at the same time, the priorities of China’s public housing policy have swung between promoting affordable housing for rent and for purchase.  

In the early stages of commercialization, when most of China’s urban residents were still living in homes allocated under the planned economy, China launched its “economical residence” scheme in the late 1990s, which aimed at enabling middle-income residents to purchase their first home.  

However, as government cutbacks on allocated housing increasingly strained low-income residents, China started shifting to low-cost housing for rent. In 2003, China launched a scheme to provide low-rent apartments targeting low-income residents, and in the late 2000s, another public rental scheme targeting migrant workers was launched.  

In July 2021, the State Council released a document explicitly calling for housing affordability in the rental market. In the policy document, the State Council said that the country’s affordable housing system will be mainly composed of public rental units for low-income households, affordable rental units targeting new urban residents, and young graduates and shared-ownership housing for lower-middle-income and first-time buyers.  

This is why the release of Document 14, which stresses the need to increase the supply of subsidized housing for purchase, signals a major shift from existing public housing policy. This supposition saw further confirmation in November last year, when Ni Hong, minister of Housing and Urban-Rural Development, said the latest reform will focus on promoting low-cost housing for purchase to build a multi-layer system.  

Different from previous public housing schemes, under the new plan, subsidized housing for purchase cannot be sold on the private market, and can only be sold back to the government. 

Under China’s previous affordable housing schemes, subsidized housing stock for purchase was allowed to be traded as private property after a set number of years, which was long criticized for attracting speculators who took advantage of cheap prices to make profits later.  

This arrangement served to undermine the effectiveness and efficiency of China’s public housing policy, another major reason why authorities shifted the focus of public housing policy to rentals, according to analysts.  

This may also point to China leaning toward the Singapore model, where the resale of HBD apartments is separate from the commercial property market, with strict restrictions on sellers and buyers.  

But according to an inside government source who spoke to NewsChina on condition of anonymity as they were not authorized to discuss the matter with media, the latest policy shift is a recalibration rather than an overhaul of existing housing policy.  

For Yu Xiaofen, vice-president of the Zhejiang University of Technology and dean of the Chinese Academy of Housing and Real Estate at the university, it is unlikely that China will adopt Singapore’s housing model nationwide.  

Yu said that the Singapore model primarily focuses on promoting home ownership through subsidized sales. But given the varied socio-economic conditions across China’s vast regions, the country needs a more diverse solution to address its housing problems.  

“Unlike Singapore, a city-state with a population of less than six million, China’s urbanization rate is only 65 percent and it has a large migrant population of 376 million,” Yu told NewsChina. 

Yu argued that given the high migrant population in Chinese cities and their relatively low income compared to other social groups, China still needs to focus on providing affordable rental housing in many regions.  

As Document 14 suggests, the reform on building low-cost housing for purchase only applies to cities with a population of over three million. It is estimated that 35 cities in China fall into that category.  

Qicai Residential Community, an affordable housing project in Chaoyang District, Beijing, built in 2022, was a former pandemic quarantine center (Photo by Li Mingzi)

An affordable-rent housing project in Baiyun District, Guangzhou, opened for visits and applications in May 2019 (Photo by VCG)

Local Adaptations 
For Yu and other experts, the lack of specifics in the State Council’s reform guideline suggests that the central government expects local governments to explore how to implement and adapt the reform based on local conditions.  

“The guideline stresses that the reform should follow a ‘build on demand’ principle, and that local governments should assess how many low-cost units are needed and make plans accordingly,” Yu Xiaofen said.  

Several cities have taken the first step. The government of Nanning, capital of Guangxi Zhuang Autonomous Region in China’s southwest, launched seven projects to build 7,200 low-cost units with a total investment of 3.9 billion yuan (US$549m). Construction of 4,200 units is expected to be completed at the end of 2024.  

However, many city officials said they still need clarification on some key questions. According to the guideline document, those eligible to purchase low-cost housing units include working-class individuals with a relatively low income who have housing difficulties, as well as skilled workers needed for urban development.  

“It is a very broad description that could include a large portion of a city’s population,” a housing official from the Beijing government told NewsChina on condition of anonymity.  

He said that the Beijing government is still studying the document and has yet to come up with specific plans to implement the reform. 

Besides uncertainty on the scale of 7.4% the planned reform, another major challenge for local governments is where the land will come from and how it will be funded. According to Document 14, land required to construct public housing should be allocated by city governments, and city governments can reclaim developed land and acquire unsold homes to turn them into public housing.  

But in doing so, it is imperative to change the existing model of how local governments are funded. Proceeds from land sales and taxes on commercial property sales make up a major source of current local government revenue. Without overhauling the local government revenue model, there is little incentive for them to push forward the reform.  

Take Shenzhen, one of China’s wealthiest cities which has already vowed to adopt the Singapore model. The proportion of public housing constructed between 2005 and 2015 is only 10 percent of all housing constructed.  

The city planned to build 170,000 homes during the 11th Five-Year Plan (2006-2010), and 240,000 units in the 12th Five-Year Plan (2011-2015). But in reality, the city only built 20,000 units and 102,000 units, or 11.8 percent and 41.7 percent of the planned targets for both periods.  

According to Song Ding, the central government has only clarified the reform’s ultimate goals.  
“First, it is clear now that housing reform is aimed at promoting the home-ownership rate among low- and middle-income residents,” Song said, “And second, we can expect that the market for commercial property will be fully liberalized with the future removal of restrictive measures.”  

“But for now, how the reform will be carried out remains a policy gray area,” he added.