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Social Housing in China Research Paper


Introduction

Social or affordable housing is living space for low-income households and is available for below-average prices on the real estate market. It is meant to institute the availability of living space and standards without creating an unreasonable financial burden on working-class families in urban centers (Cai, Tsai, & Wu, 2017). The Chinese economic boom in the last 30 years has contributed to the increased urbanization of the country, while a growing population and the influx of migrants to cities has led to a severe shortage of affordable housing. A number of socio-economic issues have emerged during the process of urbanization, such as disproportionate prices of housing unavailable to workers and low-income families. Despite substantial investment by the Chinese government, the problem remains critical. The shortage of housing in China creates social challenges that are being addressed by affordable housing urban development policy, which seeks to promote economic growth and ensure financial sustainability as cities continue to expand.

Challenges to Affordable Housing

The Chinese housing market has developed rapidly with the availability of land supply. During the process of urbanization, the Chinese government has encouraged land appropriation for construction and redevelopment. Residential and commercial real estate markets exploded as national policy focused on stimulating economic growth and encouraging migration to urban centers. The investment resulted in a significant growth in the available housing supply, resulting in a 439% increase in real estate sales from 1999 to 2007. While initially the price per square meter did not increase, after 2004 it increased by 18.7% annually. As in most countries, home ownership is directly correlated with household income. However, the increased demand for urban housing stipulated by government migration policy has resulted in an exponentially growing disproportion in the housing price to income ratio. UN-Habitat estimates that in 265 prefectures, only 10% of cities are within appropriate ranges while 69.4% have remained severely unaffordable past 2010 (Man, Zheng, & Ren, 2011).

The Chinese housing market will continue to face socio-economic pressures and various challenges in the upcoming decades. With the support of government policy, the rate of migration from rural provinces to urban centers will grow. It is estimated that annually 15 million people will migrate for job-related purposes. In addition, China is facing the demographic crisis of an aging population that is expected to rise to 24% by 2050. Despite more than 70% of the elderly living in rural areas, the trend of urbanization will increase the demographic in cities. This will impact housing markets, due to an increased demand for specialized facilities and services to accommodate this age group. Household size will decrease, and single-person homes occupied by the elderly will further limit the available space for working-class families. There are numerous financial policy questions regarding investment in social housing that need to be addressed in the current state of the Chinese economy (Chen, Jing, Man, & Yang, 2014). Overall, Chinese leadership maintains the position that a lack of adequate investment in affordable housing from regional governments and the private sector is the cause of limited housing supply for lower-income families.

Social Policy and Economics of Current Urban Development

After decades of reforms and privatization policies, the Chinese central government believes that social housing is the most effective decision to resolve the crisis of urbanization. However, there are variations in policy approach across the country. While some cities have strong government control, others maintain a laissez-faire approach to housing. In the current situation, regional governments utilize a framework developed by central leadership which is applied to achieving set targets in social housing development. This includes helping housing programs to obtain non-tax revenue and establishing means of assistance to attract migrant labor. However, administrative and economic structures, as well as regional politics and bureaucracy, can create substantial barriers to the implementation of policy (Li, Y., 2016). Contemporary housing reform that is based on market trends results in a homogeneous system which creates social divisions. Urban space has been affected by zoning, redistricting, and the formation of residential communities which all create a defined spatial order. This results in purposeful segregation, gentrification, social class divide, and privatization of valuable urban land. The process of urban renewal initiated by massive profit-driven real estate developers replaces affordable housing close to the city center with commercial high-rise upper-class buildings that few can afford (Galvez & Cheshmehzangi, n.d.).

Any housing-related policies are usually proposed with the recognition that they address a number of socio-economic needs that are tied to the public housing sector. In the context of public economics, government oversight of the housing market has been established with the purpose of redistribution of resources for social needs. Housing is a complex good that has extensive socio-economic externalities within an urban setting. It can be argued that China practices productivist welfare capitalism by making social policy dependent on economic factors. The government guarantee of social rights and welfare relies on economic growth targets. Policy makers believe that affordable housing could increase urbanization and attract labor to large cities by addressing the issue of profitability and property prices that concerns real-estate developers. Despite this, there are no attempts to limit construction or the impact of real-estate on the national economy. In fact, the government is involved in stimulating the economy further by increasing investment in the sector through the expansion of social housing (Chen et al., 2014).

Case Study

A case study was conducted to systemically analyze affordable housing statistics and programs across the Chinese cities of Beijing, Tianjin, and Guangzhou over a period of 11 years. The research focused on identifying the results of sustainable housing development. This includes investment, adherence to government guidelines, public participation, and strategic planning. The most prominent obstacle to affordable housing development is a lack of or ambiguity regarding funding sources. Such projects are usually expensive due to long construction periods, high maintenance costs, and the need for a considerable network of public facilities without an immediate return on investment. Regional governments have difficulty allocating budget funds towards such economically volatile projects, despite it being a critical measure in evaluation of their performance (Cai et al., 2017).

The most common issues in all three cities are land supply and location as well as housing unit regulations. Policies regarding affordable housing are not effectively enforced, and developers plan construction of units based on profitability rather than regulation. In all three cities, housing costs increased due to the inflation of prices on real estate and the disproportionate ratio to average household incomes. Despite an evident increase in investment in affordable housing, the ratio continues to be relatively low in comparison to other real estate property. Policies are inconclusive or ambiguous, often targeting low-income households while ignoring groups such as migrants, students, and the lower middle class that experience significant trouble in obtaining living space as well. The existing gap between housing prices and incomes is the key issue to the crisis. Although various national programs have addressed critical problems, there is still a lack of effort and promotion at all levels of government to develop long-term solutions for social housing. This can be improved through proper funding and collaboration amongst leadership, public agencies, and the private sector (Cai et al., 2017).

Financial Sustainability and Future Policy

China’s economic growth is deeply connected to the process of urbanization. Municipalities seeking to expand have been increasingly focused on city growth. However, the process of financing urbanization and providing public goods has not been adequately addressed, and funding is based on a discriminatory and unrealistic census system which does not account for migrants. Therefore, the municipality receives an administrative burden to not only construct additional housing but fund public goods costs (“China faces its future of urbanization,” 2017). Essentially, the country’s fiscal system needs to be reformed in order to establish the financial sustainability of any social housing reforms. A nationwide Public Rental Housing (PRH) program was established by Wen Jiabao which eventually merged with the existing Cheap Rental Housing (CRH) initiative in 2014. Regional municipalities attempted to create affordable housing with subsidies from the national budget. However, it had limited success and caused an array of problems such as significant fiscal burdens and slow construction rates since the private sector did not actively participate in the program due to its financial unsustainability (Li, Chen, Chen, Hui, & Guo, 2016).

Research indicates that policies targeting mortgage interest rate reduction are more efficient than housing subsidies that are aimed strictly at low-income households. In order to stabilize prices, market demand and purchases could be restricted in favor of attempts to increase supply, since that results in degrading living conditions. The Chinese leadership seems to have adopted a dual approach by using an effective fiscal policy through reduction of interest rates and restrictions on loans while downgrading the quality of life through the 70-90 regulation (Li, V., 2016). Their current and future policy is aimed at attracting investment in the public housing sector in order to increase supply. The fiscal aspect of the process should be reviewed to create an efficient financial system that could help manage social capital and price inflation. It is critical to lowering housing costs for the average population, as increased home ownership will inherently lead to socio-political stability. Since China’s economic growth is closely connected to urbanization, an efficient social housing program is necessary as a part of a long-term national strategy which improves public welfare and decreases inequality. Affordable housing can be used to capacitate investment and boost domestic spending which is essential to any healthy economy (Chen et al., 2014).

Conclusion

Maintaining social housing as a national priority is a drastic shift from previous decades of public policy. It is meant to mitigate the negative consequences of past reforms and correct inefficiencies by using the realities of the modern social economy. The real-estate sector is complex and rapidly changing, which makes it difficult to apply the Chinese system of central governance to all its aspects. The current policy is focused on creating an extensive affordable housing program which aims to boost economic development and establish a stable low-cost supply which can reduce inflation and ease an expanding wealth gap.

References

Cai, X., Tsai, C., & Wu, W. (2017). Are they neck and neck in the affordable housing policies? A cross case comparison of three metropolitan cities in China. Sustainability, 9(4), 542. Web.

Chen, J. Jing, J., Man, Y., & Yang, Z. (2014). Public housing in mainland China: History, ongoing trends, and future perspectives. In. R. Anderson (ed.), Understanding variation in the size of the public housing sector across Swedish municipalities: The role of politics (pp. 13-35). Berlin, Germany: Springer.

(2017). Web.

Galvez, L., & Cheshmehzangi, A. (n.d.). Web.

Li, D., Chen, Y., Chen, H., Hui, E. C., & Guo, K. (2016). Evaluation and optimization of the financial sustainability of public rental housing projects: A case study of Nanjing, China. Sustainability, 8(4), 1-13. Web.

Li, V. J. (2016). Web.

Li, Y. (2016). Web.

Man, J. Y., Zheng, S., & Ren, R. (2011). Housing policy and housing markets: Trends, patents, and affordability. In. J. Man (ed.), China’s housing reform and outcomes (pp. 3-18). Cambridge, MA: Lincoln Institute of Land Policy.

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IvyPanda. 2020. "Social Housing in China." November 25, 2020. https://ivypanda.com/essays/social-housing-in-china/.

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