China’s urbanization is undoubtedly an important phenomenon in the history of human development. In just 40 years, as many as 730 million people have migrated from rural areas to cities. With the rapid development of urbanization, great progress has been made in housing market reform. It not only meets the growing demand for housing but also drives economic growth and increased people’s wealth. However, the disparity between price growth and income growth rates caused by the housing bubble is making houses increasingly unaffordable for the Chinese, especially in big cities. What’s more, structural imbalance in the market has led to serious affordability problems for working-class and poor households. In 2010, China’s central government first officially issued a document advocating the development of public rental housing , in order to address the housing difficulties of the “sandwich class”. This essay will discuss the application of the Public Rental Housing (PRH) system in China and think that although the current policies has systemic defects, this measure will be a key step to solve China’s housing problems country and an important choice for the development of its housing market.
Historically, the marketization of real estate in China has resulted in generational disparities in the housing market. After the 1998 marketization reform in housing market, promotions of affordable housing policies, usages of the housing provident fund system, and the liberalization of the home mortgage market encouraged ownership of housing property rights, allowing many families in large cities to own property through preferential purchase prices. However, prohibiting public entities from providing housing for their employees, this reform had caused great losses to young workers who had since been unable to benefit from housing allocation. People who originally owned homes through state-owned enterprise allocations and those who purchased homes through preferential pricing at the beginning of the reform period have been able to boost their assets through rising housing prices. Young people who missed these opportunities, on the other hand, inevitably meet greater pressure to purchase homes today.
China’s unique household registration system also created difficulties for the foreign population to purchase houses. In the preferential housing policies for urban residents, it was difficult for migrant workers, temporary residents, and others who did not have an actual urban residence to enjoy preferential policies and successfully purchase houses in cities. In fact, half of this population still lived in rented accommodation in 2008. Today, the demand for rentals is still dominated by migrants, newly employed college students, and other new citizens concentrated in major cities such as Beijing and Shanghai. These mobile population and labor force will sure be the key targets of the PRH policy.
From a macro perspective, the importance of developing PRH is also evident. Excessive reliance on land finance and sharp demand-side stimuli following the 1994 tax-sharing reform created a severe bubble in the housing market. Specifically, in 2008, in the face of the global financial crisis, the central government proposed a “four-trillion-RMB investment plan”, which, while boosting domestic demand significantly, led to more serious overcapacity and inflation problems. Supply-side problems will be the main challenge to the development of China’s housing market in the future, which contains the contradiction between supply and demand. Nationally, the tight control of land supply and floor area ratio in first-and second-tier cities does not meet the demand for quality talent and low-skilled people, while lax control of land supply and floor area ratio third-and fourth-tier cities makes it difficult to form and support a large number of vacant properties and communities. This has to some extent prevented the maximum utilization and free movement of the labor force population.
At the same time, China has entered a phase of high-quality development in the housing market, and economic growth in this sector will continue to slow down in the future. Data has shown that investment in property development grew at its slowest pace in six years in 2021, with numbers of new housing construction projects also falling sharply in China. In this case, supply-side structural reforms aimed at meeting diverse, personalized, and sophisticated demands is the key for development in next steps. According to China’s practical experience in the operation of subsidized housing and specific national conditions, the housing needs and improvements of the middle and upper income classes (about 70%) are solved by the market, while the housing needs of the middle and lower income classes (about 30%) are mainly solved by the subsidized housing provided by the government. Thus, as a practical measure to implement the “no speculation in housing” proposed by the Chinese government, the PRH policy is also an important solution to promote supply-side structural reforms in the housing sector.
In Asia, over the past few decades, many countries or regions have protected the demand for sandwich-class housing in the form of public housing. A fire in Shek Kip Mei triggered by hoarding by refugees led to the construction of public housing in Hong Kong in 1954. The construction of public housing, although accidental, has greatly liberated the productivity of Hong Kong’s working-class and protected the basic livelihood of countless families. Considered the freest social order in the world in the mid-to-late 20th century, the region was subject to massive macro government intervention in its housing sector. This is unparalleled in any other capitalist country. PRH policies which were thought to be marginalized by the West, have been implemented in the eastern world, specifically, in cities such as Hong Kong and Singapore. By 2021, 29.3% of Hong Kong’s population is living in public rental housing. Historical cases prove that in large cities where housing prices are high and land is scarce, a sound PRH system can effectively address the housing problems of sandwich class and low-income groups.
As for the housing market, the biggest advantage of PRH lies in government control, which can not be affected by market pricing, thus to some extent solving the problem of unequal housing distribution. The disadvantaged groups are guaranteed equal opportunities in terms of access to housing resources. At the same time, different regional governments can also adjust the admission requirements for PRH for floating populations in order to attract or displace them. Combined with the previous discussion, PRH policies can play an important resource deployment role in the future of China’s housing market.
However, China’s PRH market still has many problems that need improvement. Public Rental Housing itself, as a kind of housing security, is part of the social security system and is essentially a public service. It only protects the right to living of low-income and disadvantaged groups, not housing property rights. Its nature determines that it can only benefit a small number of social groups, and it is not possible, reasonable and sustainable to implement housing security for the majority of residents. Hence, it is a very important issue how to delineate the group of people who can enjoy the PRH and how to draw the boundary between access and exit.
When Chongqing set up the PRH system, the application threshold is too low, which makes the demand for public rental housing extremely high. However, the lack of adequate housing supply in developing public rental housing operations has led to inefficiency in policies. For Beijing, the threshold for applying for PRH has not been updated since 2011, and the low household income criteria at that time are too stringent for today. It is clear that the purpose of PRH will be better served by an access policy that keeps pace with the times. Local governments should adjust relevant policies in a timely manner and provide clear guidance to different groups.
Similarly, the existence of public rental housing as a scarce social welfare resource cannot be separated from the existence of a clear exit system. In Hong Kong, there is a strict mandatory exit mechanism for PRH. The Housing Department will repossess the public housing for people whose occupancy status has changed and who are no longer eligible for PRH or who do not cooperate with the day-to-day management of PRH. This is a point that can be emulated in mainland China. For those who need PRH on a permanent basis, income examinations should be strengthened. Monetary subsidies could also be tiered, with most subsidies for those with limited incomes and a few subsidies and comparatively full out-of-pocket payments for those with higher incomes. In addition, a unified legal code in the area of PRH regulation should be established in a timely manner to unify standards across regions in China. Of course, the policies of different regions can be adapted to their own circumstances, but the harmonization of legislation would contribute to relative equality and norms of policies between regions.
It is also important to pay attention to how to solve the funding problems in public housing construction. Huge government debt is a big problem in the process of public housing construction. However, China’s increasingly well-established financial system can keep trying to securitize public housing properties to improve liquidity. For instance, the approach of Real Estate Investment Trust (REITs) from developed countries such as the United States can be borrowed. In this way, the government can partly reduce its stake in REITs for subsidized housing construction, release a certain percentage of the proceeds and management rights for the operation of public housing and play a more regulatory role. This would free up a significant portion of the funds previously invested in public housing construction and operation while achieving the goal of rapid development of affordable housing. The government could also try to make a profit by renting out the commercial areas around public housing at market rates. The consumer potential of the PRH residents, which is actually a resource owned by the government itself, can surely attract investment in different fields. Hong Kong’s experience in this area can be a reference. Additionally, for public housing, lease-to-sales after several years of continuous leasing is also a way to revitalize the property. It needs to be reiterated, however, that the Government should always maintain a firm grip on the pricing power of public housing in order to achieve optimal socio-economic macroeconomic control.
Finally, it is important that the development of PRH should focus on meeting the specific needs of different groups. For example, newcomers struggling alone in a foreign city pursue affordable and cheap rents; workers in the city who are on the rise in their careers pay more attention to the convenience of the housing due to their busy work schedule; high-level talents introduced to the city have higher requirements for housing comfort and property management level, etc. In particular, migrant workers and college student residents pay special attention to the distance between their living and working places. The separation of living and employment spaces can lead to rentals being abandoned by these groups. Therefore, rationalizing each group’s housing community is conducive to enhancing the living happiness of these groups. In addition, the aggregation effect of the same group can create a more integrated community environment.
Being all equal and independent, no one ought to harm another in his life, health, liberty, or possessions. Effective solutions to the housing difficulties of the Chinese people and the maintenance of fair housing opportunities for all residents are the basis for achieving the noble goal of harmonious human settlements. The essay firmly believes that promoting a more scientific public rental housing policy in China will help solve the problem of the great pressure on residents to home ownership. It is also an important solution to promote healthy development of the real estate market, steady and fast economic development, effectively safeguard and improve people’s livelihood, and promote social harmony and stability.