No quick fix for Beijing's housing woes

BEIJING - The gleaming office towers and soaring residential buildings that frame the skyline of the sprawling Chinese capital are massive icons of China's economic miracle over the past three decades.

But lurking in their shadows are the less well known illegal bomb-shelter homes, tiny basement dorms and left-behind urban villages that form slum-like communities housing a good proportion of Beijing's population of 21 million.

Providing decent and affordable housing is a growing challenge that Beijing, like many other Chinese mega cities such as Shanghai and Shenzhen, faces as millions of rural residents answer the siren call of urbanisation. Some 28 per cent of China's urban population lived in slums in 2010, according to a United Nations report.

In response to the massive influx of migrants to urban centres, the central government committed in 2011 to build 36 million public housing units nationwide in a five-year period till 2015.

More recently, in October, President Xi Jinping also pledged to increase the supply of land for homes and spend more on affordable housing projects, which he said the government will be responsible for, signalling that the issue had finally caught the eye of the highest levels of power and rightfully so.

With a staggering 850 million expected to be urban dwellers by 2020 from 700 million now, providing housing - particularly affordable homes - has taken on increased urgency. Associate Professor Huang Youqin at the department of geography and planning at the University of Albany in New York told The Straits Times the issue is important both socially and politically.

"When you have a large number of people who don't have proper shelter, it's going to be a problem," she added.

"There is a lot of anger in society and I would think it's within the top five issues Beijing has to tackle."

But putting a roof over the heads of 1.3 billion people is a tall order and one the government has muddled its way through so far.

China's affordable housing scheme, introduced in 1999, was designed to provide cheaper housing for wage-earning workers and low-rent homes for poor residents.

But many gripe bitterly about the corruption and inefficiencies rife in the system.

Ms Chen Xiwen, lead policy analyst at consultancy China Policy, told The Straits Times the supply of government-subsidised housing has remained inadequate even as home prices have soared out of reach for many common folk, especially in the first-tier cities.

"This has created a widening urban sandwich class that can neither afford commercial housing nor be eligible for government programmes," she added.

Observers say there are four main reasons for the failure to provide adequate housing for China's poor: lack of a clear mission from the central government, lack of commitment from local government, a flawed allocation model and an exclusionary policy towards migrants.

Prof Huang said there are often "multiple but conflicting goals... for low-income housing in particular", that have resulted in policy changes.

For instance, criteria for who qualifies for social housing and how subsidies are provided are adjusted frequently.

In addition, the interests of local governments have often conflicted with those of the central authorities, leading to a lack of commitment and resistance to implementing these programmes on the part of the local governments.

"Compared to commercial and private housing developments, which bring in handsome land leasing fees and related taxes, low-income housing is a resource- draining sector with local governments not only providing free land and reducing or waiving taxes, but also paying for its development and management," Prof Huang pointed out.

Furthermore, the distribution of these homes is inefficient, with deserving households often left out.

Low-income homes, some of which are sold at discounted prices, are seen as valuable commodities, given the high property prices, and are therefore often allocated by the relevant authorities to those with guanxi or connections.

"The poorly designed for-sale affordable housing scheme has benefited more rent-seekers than people in need. The homes often end up as private properties of these buyers and become a major source of their income," China Policy analyst Yuan Xin noted.

A nationwide audit of last year's urban affordable housing projects by the National Audit Office found that 108,400 households that do not qualify for subsidies got their hands on 38,900 affordable homes or received rental subsidies amounting to 153 million yuan (S$32 million).

They did so by providing false information and capitalising on lax review procedures.

Hence the anomaly of luxury cars commonly found in affordable housing communities, as reported by business magazine Caijing earlier this year.

Lastly, most rural migrants to the cities - some of whom live in squalid conditions and are in desperate need of affordable homes - are not eligible for these programmes, leaving them vulnerable to unpredictable rent increases.

Ms Rosealea Yao, principal analyst with Beijing-based GaveKal-Dragonomics Research, estimates that 50 million rural migrants are living in sub-standard housing, lacking their own kitchen or bathroom.

"About 90 per cent of migrants in cities do not own homes, so if affordable housing is not extended to them, there is no point," she told The Straits Times.

"Addressing the housing issue could also lead to other positive outcomes like raising domestic consumption as more resources are freed up."

But solving this problem is no easy feat, requiring a lot of political will, observers say.

Despite positive signs from the government, observers caution that it remains to be seen how these policies will be executed.

Some experts say the government should give incentives to private developers to attract more to the affordable home segment, while others suggest building more subsidised rental homes.

The latter will prevent people from investing or speculating in the affordable home segment.

Added Ms Yao: "The government must also establish better regulatory mechanisms to ensure fair and transparent allocation of affordable homes."

But financing and meeting the pent-up demand for cheaper homes in big cities remain key challenges for the government.

More than 100,000 Beijing residents, for instance, submitted their application to buy just 2,000 affordable housing units last month.

This is despite potential buyers being unhappy with the poor location far from the city centre. Teacher Stella Xu, 27, was one interested buyer who found herself shut out of the process even before it began.

"I tried to go on the website on the first day to take a look and couldn't even get on. I've pretty much given up."

Range of affordable housing

Low-rent housing

Government-owned housing that is leased at low rent rates to the poorest urban residents.

Primarily financed from local government budgets, but financial transfers from the central government have become a more important component of overall funding.

Homes are owned by the state and cannot be sold.

Initiative was broadened in 2009 to cater to a wider range of people, including recent graduates and migrant workers, who might not qualify under normal criteria.

Rents for these groups are usually higher.

Economic housing

Homes are sold to qualifying families at typically 20 per cent to 30 per cent below the prices of comparable homes.

Owners may not sell or lease their units unless conditions such as a minimum occupation period are met.

Development may be undertaken directly by local governments, by work units, or as is often the case - by commercial developers who receive free land and some exemption on taxes, but are required to follow guidelines on selling price and construction standards.

Developers' profit margins are usually capped at 3 per cent to 4 per cent compared with typical margins of 15 per cent to 20 per cent for ordinary commercial housing.

Price-capped housing

Aimed at urban middle-income families.

Prices are capped by local governments when land is sold to a developer, usually at levels between those of economic housing and ordinary commercial housing.

As with the economic housing programme, buyers must meet certain criteria, and are subject to similar restrictions on resale.

Shanty-town resettlement

Constitutes a major component of China's affordable-housing ambitions.

A large proportion of China's shanty towns, typically shabby residential areas that were built for factory workers when the country started to industrialise, are situated in urban areas.

These differ from the informal or illegal slums occupied by squatters in other developing countries.

During the process of redevelopment of these towns, displaced families are offered either economic or price-capped housing, or receive financial compensation

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