Moped riders pass residential buildings developed by Country Garden Holdings in Baoding, Hebei province, on August 1. Housing has become unaffordable for many young people in China. Photo: Bloomberg
Opinion
The View
by Winston Mok
The View
by Winston Mok
How social housing could get China’s economy and population growing again
Policymakers have enacted easing measures for the property sector, but the impact is likely to be limited and fail to address the underlying causes
Looking to the Singapore model of social housing could be the best way to get China back on track
China has begun policy easing in the property sector, taking the kind of steps that are inevitable in the current economic climate. However, the impact is likely to be highest in mid-tiered cities but limited in the top- and low-tier cities.
Also, none of this policy tinkering will address the needs of the people at the base of the economic pyramid. The clampdown on runaway property prices was motivated by laudable social objectives, but the brakes might have been applied too firmly, with repercussions from local government financing to banking sector risks.
In an environment of economic uncertainty, low investment confidence, depressed personal incomes and massive youth unemployment, a cooled property market is hardly enough to promote home ownership. The nation’s property woes have raised concerns that China may be at risk of entering an era of “Japanification” – lost decades of economic stagnation.
Meanwhile, in Singapore, rents have skyrocketed with the influx of expatriates in the past few years. Yet, that has not affected social stability, as more than 80 per cent of Singapore’s population live in owner-occupied public housing.
China’s property sector is now in a quandary following the fateful choice to adopt a model of land-based financing. Given local governments’ fiscal woes, reliance on land sales income has become entrenched. In such an environment, local governments lack the resources and incentives to provide social housing.
With a series of housing reforms from 1988, China moved away from danwei – work unit – housing, towards a market-based system. Social housing was expected to make great progress, but instead private housing came to dominate the market.
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In the decade from 2010 to 2020, China made big strides in state housing, benefiting more than 100 million people – most of them through rehousing after relocation or shantytown redevelopment. About 38 million people, less than 3 per cent of China’s population, lived in public rental housing as of the end of 2020.
As a city with high housing prices and low rates of home ownership, Shenzhen has been a leader in social housing. Inspired by the Singapore model, it has pledged to build at least 1 million affordable homes by 2035 and eventually have 60 per cent of its population living in social housing.
Not only does Shenzhen have robust municipal finances and a low dependence on land sales, it also receives fiscal support from the central government for social housing.
Many local governments are financially fragile after years of the zero-Covid policy and weak land sales. Few have the requisite financial resources to rescue incomplete projects. Emulating the Shenzhen model would be a distant dream for most, and central government support is necessary.
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Affordable social housing can be plagued by problems including poor locations and low quality. Instead of building new social housing, the state could purchase excess stock, including unfinished projects, at discounted prices from beleaguered developers. The government could in turn offer completed units to qualified buyers as co-owned housing at a fraction of market prices.
Housing has become unaffordable for most young people in large cities unless they receive help from their parents. No level of market cooling can realistically address their needs unless it is to such an extend that it risks a disastrous impact on the asset values of China’s middle class and undermining banking-sector stability.
To balance economic and social considerations, social housing seems to be the only way out. Correcting the oversupply in some regions and restoring the supply-demand balance could require the government to buy up excess stock and resell it as social housing. The central government would have to step in – such as with a fund that includes contributions from extraordinary dividends by leading state-owned enterprises – as this would require financial resources beyond the means of most local governments.
A key driver of the government’s property sector reforms is to support young families. The current economic environment hardly encourages marriage, let alone starting a family. Creating good jobs is primarily the private sector’s responsibility, but the government can lower the cost of living for young families.
Social housing should favour young people, particularly those with children. There should be pathways to upgrade to larger units if and when more children arrive. A family could be fully vested in its ownership in co-owned housing units as its second child turns 21, with less rewarding vesting for single-child families. In effect, the state would reward families for raising at least two children with a substantial wealth transfer – nothing short of incentives like this will help reverse China’s falling birth rate.
Increasing demand will also be a key driver for economic growth. With a poor outlook for jobs and earnings, mere talk by the government will not get people to spend. Growth in home ownership is a sure way to drive consumer demand with the purchases of furniture and appliances.
In enacting tough regulations on the property sector, the state made the difficult choice of putting social objectives first. In the end, neither its social nor economic goals have been met.
Social housing can be a way to break through the tension between social and economic goals and stimulate both short-term demand and long-term population growth. In its pursuit of the Singapore model, Shenzhen is heralding a path towards common prosperity for China.
Winston Mok, a private investor, was previously a private equity investor
