New house rules

Wen Jiabao: affordable dream

Former Chinese Premier Wen Jiabao’s favourite poet is Du Fu, a literary figure from the Tang Dynasty some 1,300 years ago. In his latter years Du was so poor that his daughter died of starvation, prompting one of his more famous verses: “If only I could get a mansion with a thousand, ten thousand rooms; a great shelter for all poor people, together in joy.”

Du’s vision may well have inspired Wen’s most ambitious intervention in the property market. In 2011 the premier pledged to “provide adequate housing for all people”, mandating that local governments build 36 million affordable housing units by 2015.

With just over a year to go to that deadline – and the premiership now passed to Li Keqiang – is Wen’s housing plan going to come to fruition?

Li is regarded as less of an interventionist than Wen (see WiC241 for their different governing styles). Since taking office last year, he has avoided quantifiable policy targets of his own and there is speculation that Li isn’t too concerned about fulfilling his predecessor’s housing pledge.

“Many people think the provision of 36 million affordable housing units is an impossible mission,” CBN notes.

Even getting to an estimate of how many affordable homes have been built so far is something of a challenge. However, after aggregating data from various central authorities and local governments, CBN believes that construction of about 30 million units had begun as of June this year. But that doesn’t mean that a swathe of subsidised homes is going to hit the residential market. CBN also notes that no single government body is tasked with overseeing the progress of these housing projects. As a result there are no clear figures on how many are complete, nearing completion or just holes in the ground.

“Some projects could be left unfinished and idle due to lack of funding. There could also be cases in which the local governments have been reporting false figures,” CBN reports.

Most local governments rely heavily on land sales as well as the taxes paid by real estate developers for their income. A spike in the supply of affordable homes in some cities would compete directly with their ability to maximise revenues by selling land for private development. China Securities Journal notes that Wen’s five-year public housing plan has also coincided with a construction boom in private residential homes: from 2009 to 2013, up to 6 billion square metres of new floor space was added to the market.

Many of these new homes – thanks to a series of homebuying restrictions imposed in major cities (another Wen legacy) – are unsold, weighing down developers’ balance sheets and losing value as home prices fall. According to Shenzhen World Union Properties, a real estate consultant, the inventory of unsold new homes in China’s 20 largest cities has jumped to the equivalent of 23 months of sales. Government figures also suggest that floor space for unsold properties surged 25% nationwide in June from a year earlier.

But might the weak market sentiment create an opportunity to meet Wen’s 36-million target? Some local governments are said to be planning to purchase some of the unsold properties to supplement their affordable housing plans. In Hunan the provincial government said last month that it has been allowed to acquire “an adequate amount” of private residential units for public housing and for the relocation of residents affected by urban renewal projects.

The 21CN Business Herald notes that other cities including Chengdu (in Sichuan) and Jiaxing (in Zhejiang) have unveiled similar plans, while China Securities Journal suggests that local governments could get innovative and become “house banks” by renting unsold properties on long-term contracts and then leasing the units as low-cost homes to the public. “It is important to readjust the means of supply for affordable housing according to market conditions,” the newspaper recommends.

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