China’s real estate market has been in a tumultuous state in recent times, with many real estate enterprises at risk of default and a crisis of restructuring and liquidation looming over Evergrande. In turn, the slump in the housing market is slowing down economic growth, while contributing to the sharp decline in local revenue.
The recently-concluded Central Economic Work Conference clarified that efforts are needed to support the commercial housing market to better meet the housing needs of buyers and adopt city-specific policies to boost the virtuous cycle and healthy development of the sector. This is seen by observers as relief for strict policies implemented prior. Adjustment, however, is not a change in broad direction. The conference reaffirmed the principle that housing is for living in and not for speculation, while also pointing out that “expected guidance should be strengthen.” These adjustments amid tough reforms are necessary and good for the economy.
It is the duty of the government to “meet the housing needs of all people.” Since the “housing is for living in and not for speculation” position was first mentioned by the central government in 2016, the real estate industry has experienced unprecedented regulation. The efforts toward this position have begun to bear fruit, as they have greatly compressed speculative space and contributed to the reversal of expectations that house prices only go up. These are hard-won achievements, which must be cherished. Even if the downward pressure on the economy increases, we should persevere and not swerve, otherwise, all our previous efforts will be rendered pointless. More importantly, authorities must ensure this “no speculation” position through efforts such as increasing effective supply and meeting the differentiated housing needs of the public.
For this to be possible, we have to respect the objective laws of economic and social development. Land supply for residence, commerce and public construction in cities should be closely linked to indicators such as employment, resident population or number of insured people. Urbanization, especially the inflow of people to China’s biggest cities, is an irreversible trend. Restrictions to curb this trend are vain attempts, which will only lead to more serious resource misallocation and delay in solving the housing problem.
At present, there is an obvious contradiction between the supply and demand of commercial housing, especially in metropolitan areas with large population inflow, where housing is seriously insufficient. Housing prices are, after all, determined by supply and demand. Therefore, excessive demand and insufficient supply will inevitably lead to a rise in house prices. Meanwhile, in the areas with population outflow, oversupply of housing will result in a waste of resources. Land and housing supply are inseparable from government planning, but these plans must be made following demographic and economic laws. Recently, we have seen a positive change: the focus of real estate regulation and control is shifting from the demand side to the supply side. This is reflected in such measures as speeding up the reform of the land management system and tilting the resources of construction land to central cities and key urban agglomerations. This change is undoubtedly conducive to gradually balancing the relationship between population and housing. However, supply regulation needs to be improved. Relevant authorities should implement the measures defined by the central government, such as encouraging both renting and buying, speeding up the development of the long-term rental market and promoting the construction of subsidized housing.
To meet the housing needs of the people, the government not only needs to increase the supply of commercial housing, but also make a good top-level design and build a scientific, reasonable and fair housing system. In a market economy, demand for housing is hierarchical and not equal to everyone, but it needs to be kept within certain limits. As the economy improves, households renting their homes may have the demand to buy houses, while owners of smaller apartments may have the demand to move into bigger ones, ultimately creating a greater demand for high-end villas. The market can play a regulatory role, and we need to get rid of the mistrust of the market as a result of housing speculation.
It should also be noted that the multi-tiered housing system was established in 1998, around the same time as the housing reform was launched. The “Notice on Further Reform of Urban Housing System and Speeding up Housing Development” issued by the State Council in 1998 proposed that different housing supply policies should be implemented for families with different incomes. Specifically, the policies are expected to enable the lowest-income families to rent low-rent houses, low-and middle-income families to buy affordable houses, and high-income families to buy and rent commercial housing at market prices. Unfortunately, since then, commercial housing had ushered in rapid development, while the policies of subsidized housing have been unable to achieve effective outcomes, resulting in a halting housing system. As the years have gone by, people have seemed to be accustomed to this situation.
The good thing is that this situation has changed in recent years. The housing security system is developing toward a more diversified level, and more efforts have been made to ensure public rental housing, subsidized rental housing and co-ownership housing. However, many challenges in maximizing the benefit of those groups who are most in need still remain, as housing security should not only be adequate but also fair and targeted. There is still a lot of room for growth in the total amount of houses. In 2021, 40 key cities across the country had plan to raise 936,000 units of subsidized rental housing, according to data from the Ministry of Housing and Urban-Rural Development. However, this is obviously insufficient in a big country like China. In addition, subsidized housing cannot ignore scientific planning and design. For example, in comparison with popular owner-occupied housing, co-ownership housing is not in popular demand.
Subsidized housing is insufficient and not distributed fairly. There have been cases of luxury car owners living in subsidized housing, which caused widespread controversy and indicate corruption at play. Therefore, we should attach great importance to fair distribution and ensure that houses are available to those in urgent need of it. Local governments should further clarify and refine the central government’s requirement that subsidized rental housing should mainly aim at new dwellers and young people in big cities, without any income threshold. In fact, in previous years, there have been many purchase and rental fraud cases, where families have falsely reported their income and housing situation, and even cases where officials have been queuing up to buy affordable housing. Fair distribution not only depends on the threshold limit but also on the strict investigation and crackdown on violations. The continuous efforts against corruption have created a favorable atmosphere for the fair distribution of subsidized housing. In addition, subsidized housing should be provided with a clear exit mechanism that can ensure timely withdrawal from the subsidized housing system for residents who gain the ability to buy or own commercial housing.
The virtuous circle and healthy development of the real estate industry is crucial for the economy, in areas such as China’s prevention and resolution of fiscal and financial risks, urbanization, the balanced development of regions, the upgrading of industrial structure and citizens’ rights to move freely. Over the past 20 years, China’s real estate industry has undergone many rounds of regulation and control, which has provided a lot of experience and lessons. From this, we can draw a basic conclusion: Only by meeting the housing needs of the public can we stop people from buying houses for speculation.
Get our weekly free Must-Read newsletter.
