Promoting the Development of Low-Income Housing Projects

From: English Edition of Qiushi Journal Updated: 2012-03-31 10:54
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 The vigorous development of housing projects for low-income earners is an important aspect and an essential part of our efforts to implement the Scientific Outlook on Development, improve public well-being and develop a harmonious society. The Twelfth Five-Year Plan has set forth the task of developing 36 million low-income housing units over the next five years, which includes the construction of new units and the renovation of run-down urban houses. According to the plan, 10 million units will go into development in the year 2011. This decision, made by the CPC Central Committee and the central government on the basis of overall planning, marks the launch of a landmark welfare program in China.

 A group of prospective tenants viewing public rental housing in Shanghai. On December 29, 2011, the first 2,900 units of public rental apartments funded by the Shanghai municipal government were made available in Xuhui District. / Photo by Xinhua reporter Chen Fei

 A leap forward in the development of low-income housing

 China began the reform of its housing system along with the deepening of economic reform, gradually replacing the long-standing system under which housing was the responsibility of the government and employers. In 1998, the launch of housing reforms created conditions for the active participation of the market and employers in the investment and construction of housing. This gave rise to China’s real estate market, which in turn led to a significant increase in the supply of housing and the rapid improvement of living conditions. For example, per capita living space in China went from 18.7 square meters in 1998 to 27.1 square meters in 2006.

 In addition to asserting the fundamental role of the market in regulating the supply and demand of housing, local governments have also explored ways of developing low-income housing projects in urban areas. These efforts began in 2006 with a trial project for the extended renovation of run-down urban areas in Liaoning Province. In 2007, the State Council incorporated the development of low-income housing projects into the scope of public services to be provided by the government. Following this, governments at all levels identified the development of low-income housing projects as a top priority, thus setting in motion the leapfrog development of low-income housing projects.

 China has gradually developed a framework for the provision of various types of low-income housing. At present, China’s low-income housing system covers 11 types of housing that fall into 7 categories. These include low-rent housing, public rental housing, renovation projects in run-down areas, affordable housing, ceiling-priced commodity housing, the renovation of dilapidated rural houses, and the construction of permanent housing for nomadic herders.

 A framework of policies on low-income housing has gradually been established. In recent years, the relevant departments of the central government have formulated a series of regulations, rules and institutions in accordance with the decisions and arrangements of the CPC Central Committee and the central government. In addition, local governments have formulated specific measures for the implementation of these measures in accordance with their local conditions. These measures provide for the range and level of coverage, the means of allocation and administration, and access and exit mechanisms, and also contain stipulations concerning the planning, design, size, quality and safety requirements of low-income housing projects. The central financial authorities have also established a corresponding framework of fiscal and taxation policies to complement the development of low-income housing projects, which includes methods for the management of central government subsidies, mechanisms for local government investment, and preferential policies in regard to taxation and fees. These measures have laid down an effective institutional foundation to guarantee the accelerated development of low-income housing projects and the fair allocation of low-income housing.

 Government expenditure in low-income housing projects has increased rapidly. A diverse range of channels for the funding of low-income housing projects through public finance have been established. These include dedicated subsidies from the central government; allocations from local government budgets; earnings from the public accumulation funds for housing; proceeds from land transfers; and income from the issuance of local government bonds. Government expenditure in low-income housing projects has grown at an unprecedented rate in recent years. From 2007 to 2011, the central government allocated 329 billion yuan in subsidies for low-income housing projects, representing an average increase of 120.6% per year. The allocation for 2011 was 170.5 billion yuan, an increase of 163.3 billion yuan over the year 2007. At the same time, local governments at all levels have constantly increased their levels of expenditure in low-income housing projects. From 2007 to 2010, total government expenditure in low-income housing projects amounted to 307.686 billion yuan, representing an average annual increase of 161.1%.

 The effects of housing policies have become increasingly apparent. China was able to basically address the housing difficulties of 15 million low-income and lower middle-income families in urban areas and renovate dilapidated houses for 1.62 million rural households by the end of the Eleventh Five-Year Plan. Our housing policies have allowed us to improve the living conditions of an increasingly large number of families, fulfilling their dreams of housing.

 Policies for accelerating the development of low-income housing projects

 In addition to defining the targets and methods that constitute our top-level design, it is also essential that we work faster to create institutions, improve policies, and develop operational mechanisms during the Twelfth Five-Year Plan.

 We need to accelerate the development of public rental housing and make this the focal point of our low-income housing projects. The State Council has repeatedly emphasized that public rental housing should be the main focus in the development of low-income housing. At present, the prominent issues we must address are housing for low and medium-income residents, who are neither residents of run-down areas nor eligible for low-rent housing; and housing for the newly employed, such as graduates, who face temporary housing difficulties. The solution to these issues is the provision of public rental housing by the government. The main duty of the government should be to accelerate the development of a framework for low-income housing which primarily consists of public rental housing. This should be followed by the inclusion of non-local people with stable employment in urban areas under the coverage of low-income housing projects by lifting of restrictions imposed by household registration, thereby extending eligibility for low-income housing to all target groups. In addition, we need to place low-rent housing and public rental housing under a single management system, and establish sound mechanisms for the construction, operation and management of public rental housing. The operation of public rental housing and low-rent housing funded by the government should be subject to market mechanisms. Rent should be regulated on a dynamic basis and levied differentially according to the income levels of residents, with priority being given to low-income families with housing difficulties.

 We should use the renovation of run-down areas as a means of accelerating the development of low-income housing projects. The renovation of run-down areas should be viewed as an integral part of urban, cultural and social development. As such, a proportion of the development area in urban renovation projects should be dedicated to the development of public rental housing. Requirements and liabilities in regard to the development of public rental housing in renovation projects should be listed as preconditions for the transfer of land-use rights to developers. These requirements should include the number, size and layout of the units to be built, as well as their prices, construction schedules and quality. Moreover, the fulfillment of these obligations will be enforced by the government on a mandatory basis. Upon completion, public rental housing should either be operated as the property of real estate enterprises or repurchased by the government. The allocation of public rental housing within urban renovation projects is conducive to the close integration of government guidance and market operation. This will not only help us to address the shortage of funding and land for low-income housing projects in various localities, but will also provide the residents of such projects with easier access to schools, hospitals and their places of work. Moreover, this mode of development will enable us to avoid the placement of projects in remote areas and the over-concentration of low-income groups, which are both causes of social problems in concentrated construction schemes.

 We need to balance the relationship between the government and the market by gradually incorporating affordable housing and ceiling-priced commodity housing into the market. Government initiatives in housing support should be prioritized towards the satisfaction of basic housing needs, while people who wish to own their own property should turn to the market. Once property prices in the real estate market return to rational levels, the government should cease the construction of affordable housing and ceiling-priced commodity housing, and divert funds and resources to the development of public rental housing instead. In addition, market entities will gradually be required to assume a greater level of social responsibility by devoting a certain proportion of the development area in their real estate development projects to public rental housing. This housing should be incorporated into the low-income housing system and used to satisfy the housing needs of lower middle-income groups.

 We need to improve our credit policies in order to stimulate the development of low-income housing projects. Our current mode of financing, which mainly comprises of direct government investment, should be replaced with a market-oriented system operated under the guidance of the government. The government should encourage the participation of the non-government sector in the development and operation of low-income housing projects through the provision of capital injection, investment subsidies, interest discounts and preferential policies in regard to taxes and fees. We should establish dedicated channels for the financing of public rental housing projects, and actively encourage the non-government sector to participate in the development and operation of low-income housing projects. At the same time, eligible and financially capable government investment companies should be encouraged to provide funding for the development of low-income housing through the issuance of corporate bonds.

 We need to improve our fiscal and taxation policies to promote the sound development of the real estate market. Financial departments at all levels should continue to optimize their financial expenditure and increase government spending in low-income housing. We must ensure that no less than 10% of the proceeds from the transfer of land-use rights goes into the development of low-income housing projects, and also ensure that the remainder of earnings from the appreciation of housing accumulation funds following the subtraction of loan provisions and management expenses is spent on low-income housing projects. In addition, we need to continue to implement tax reduction or exemption policies for the development of low-income housing projects.

 We need to improve our administrative approval mechanisms to further reform the housing supply system. First, we need to further improve our land supply policies by implementing special policies for the supply of land to low-rent housing and public rental housing projects. Second, we need to improve our administrative approval mechanism by implementing joint approvals, integrating work procedures, and simplifying workflows, so that we will shorten the approval process for housing projects and thereby increase efficiency. Third, taking into account the fundamental regulatory role of the market, we should promote the sound development of the real estate market by improving our taxation policies. We need to promptly adjust the structure of our taxation in the real estate market and use taxation policies as a means of limiting the development of large-unit properties and inhibiting speculative purchasing. This will allow us to rationalize consumer expectations and attitudes in regard to housing. Fourth, we need to deepen the reform of the housing supply system in order to address the lack of supply channels and the monopolization of housing supply by real estate developers. By drawing on international experiences, we should develop diverse channels for the supply of housing, such as housing cooperatives, and thereby provide residents with alternatives to purchasing housing from real estate developers.


(Originally appeared in Qiushi Journal, Chinese edition, No.22, 2011)

Author: Assistant Minister of Finance of the People’s Republic of China

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