Many local governments are failing to provide low-rent housing, as Central Government policy requires
　　
　　Measures to cool down China"s red-hot housing market are sweeping the country. The State Council, China’s cabinet, issued a circular in late May announcing an increase in the minimum down payment for a new apartment larger than 90 square meters to 30 percent from 20 percent and imposing a transaction tax on properties resold within five years of purchase, among others. One of the aims, according to the circular, is to increase the supply of apartments affordable for average homebuyers.
　　The latest cooling initiative is the second of its kind in a year.
　　To improve housing conditions for low- and middle-income people, the Ministry of Construction has offered a three-pronged solution: accelerating the establishment of a low-rent housing system, regulating the construction and sale of government-subsidized housing projects and stimulating the resale of properties.
　　When it comes to the low-rent housing system, a spokesman for the ministry said the Central Government plans nationwide coverage of the system by the end of this year, in addition to increased investment in housing construction for this purpose.
　　In early April, the Ministry of Construction disclosed that 70 of 291 designated cities have not established an urban low-rent housing system as required by the Central Government. In fact, as early as 1998, the State Council required these cities to establish such a system.
　　“It is remarkable that nearly a quarter of the designated cities failed to set up the low-rent accommodation system. The scenario reflects a predicament: the Central Government’s orders are often blocked,” commented Shanghai Securities News.
　　The low-rent housing system is a kind of social welfare for needy families, which actually draws on similar arrangements in many other countries and regions across the world. For instance, the South Korean Government built 900,000 low-rent houses in four years (1988-92) for families with low incomes. Also, at its peak, the number of people living in public housing in Hong Kong amounted to nearly half of the total population of that city.
　　In recent years, some Chinese cities, such as Beijing, Shanghai and Hangzhou, have phased in the system and have relaxed application criteria for such housing. On the whole, however, the supply of and demand for low-rent houses remain seriously unbalanced.
　　Officials from the Ministry of Construction said that those who meet the following two conditions can apply for low-rent houses: families living on the government’s subsistence allowance whose per-capita living space is less than 60 percent of the local average. Because the economic development of different regions varies a lot, the local government has the power to set its own standard.
　　For example, the Beijing Municipal Government stipulates that families whose per-capita income is below 580 yuan and whose per-capita living space is less than 7.5 square meters can apply for low-rent houses. But, there are too many residents who meet this minimum level and the government has to draw lots to determine the rental sequence.
　　Beijing resident Wang Shulin said he has been applying to join the low-rent housing program since last year, but he has not been successful so far. His three-member family has had to live in a 10-square-meter home that is in poor condition. “It is not because we couldn’t meet the requirement, but because the number of low-rent houses is too small with too many applicants. The applications before mine already exceeded the number of houses,” he said.
　　“Of the 18 districts and counties in Beijing, five have not established the low-rent housing system at all, while another five have only placed 67 families,” said Yu Lei, an official of the Beijing Construction Commission.
　　
　　Small budgets
　　
　　Official statistics reveal that the total budget for low-rent housing projects in Beijing is no more than 340 million yuan, less than the investment in one high-end housing project in the city. Moreover, the funds for this purpose come from only one channel--the interest income of the urban housing provident fund.
　　Take Guangzhou, Guangdong Province, as an example. In 1998, the economically developed city led the country in implementing a low-rent housing scheme. By the end of 2003, Guangzhou had invested only 200 million yuan and relocated only 1,041 families, which is far less than the total number of applicants. The situation in Shanghai is no better. The city adopted the low-rent housing system in October 2000. To date, the municipal government has distributed only 140 million yuan in the form of rent subsidies for needy families, which is in sharp contrast to the generous investment in the local real estate industry.
　　Since there are too few low-rent apartments for the number of applicants, nearly every city bars the huge migrant population from access. Beijing is no exception. As a matter of fact, the majority of the migrant population lives at the bottom rung of society with little income and poor social welfare. Theoretically, those people represent the truly needy population for low-rent housing.
　　Any taxpayer has the right to live in a low-rent apartment, which is a kind of public resource. If migrant workers are excluded from the urban welfare system, the policy is actually discriminatory and unfair, experts say. However, cities cannot find a better way out. Realizing the predicament, some cities are striving to adapt the policy to the actual situation. For instance, Shenzhen, a booming city in Guangdong, stipulates that migrant workers in the city have the right to apply for low-rent houses, with a minimum six-month lease period.
　　As for the shortage of affordable housing, Nie Meisheng, President of the China Housing Industry Association, noted that the lack of capital is the major reason behind the phenomenon. For a long period of time, low-rent housing was built with financial support from the government and social security fund, which is far from enough. Moreover, since low-rent housing cannot guarantee a “normal” profit but demands as much time and money as average residential projects, few developers are interested in this area.
　　Officials from the Ministry of Construction admitted that the problem mainly stems from the lack of funds, as some local governments provide little financing for constructing low-rent houses.
　　Apart from the shortage of capital, experts see a more profound problem. Although the Central Government has begun to emphasize social progress, local governments fundamentally have not changed their inclination to prioritize economic development. As the pillar industry in many regions, the real estate industry may determine the overall economic situation of an entire region. It has been demonstrated that the supply of low-rent housing is inversely proportional to housing prices: A 5 percent increase in the supply of low-rent houses may force housing prices down 3-5 percent, resulting in a slower pace of development of the local economy. Without punishments and incentives, many local governments are reluctant to carry out the low-rent housing policy.
　　“The above situation is mainly caused by the dysfunction of the government. Or to be more frank, the local governments do not take seriously the construction of low-rent houses,” Zhang Yueqing, a former director of the Real Estate Research Institute of the Capital University of Economics and Business, told Beijing Review.
　　Zhang explained that affordable housing is a basic living condition for the low-income group and is a kind of public resource. One of the functions of the government is to provide public goods. However, “Viewed from the current situation, the government hasn’t fulfilled its duty,” he said.
　　Zhang cited a few figures to support his point: The low- and middle-income group comprises 70 percent of the population, while the real estate investment for this group of people only accounts for 6 percent of the total. Take Beijing as an example. Every year, Beijing builds about 20 to 30 million square meters of housing, but only 2 to 3 million square meters target low- and middle-income households.
　　“Some local governments may have difficulties in their investment budget. But from my perspective, the lack of funds is probably an excuse to pass the buck. You see, nearly each local government has built some “vanity” projects, which cost a huge amount of money. To put it bluntly, the government does not play an active role,” Zhang stated.
　　
　　Are rent subsidies the answer?
　　
　　Money is the ultimate problem. Shang Jiaowei, a researcher at the Chinese Academy of Social Sciences, believes that with the development of the economy and the increased revenue of local governments, the Central Government should enact certain policies to ensure that local governments invest adequate money in low-rent housing projects. Shang added that local governments can find ways to expand the financing channels. For instance, the Central Government can issue housing construction bonds for this purpose.
　　Nie of the China Housing Industry Association suggests that the government create a trust fund for the construction of low-rent apartments. He explained that the real estate investment trust fund would invite professionals to invest and manage the money collected by the fund. The rent from the project would be returned to investors as a profit.
　　“This kind of direct financing mode will not pose a big burden on banks or the government. In this way, the government only needs to provide subsidies to fill the gap between the rent and the return of capital,” he said, contending that it is a good way to start large-scale low-rent housing construction with limited capital.
　　Recently, the Central Committee of the China National Democratic Construction Association, one of the country’s eight democratic parties, submitted several suggestions to the State Council. One of them is that a guarantee of basic living conditions for the urban low-income group should be included in the scope of government functions, and low-rent housing should be included in the social security system. It also suggests that the implementation of a low-rent housing policy should be one of the criteria for appraising local governments’ performance.
　　The Ministry of Construction responded cautiously to the proposals, saying that it has issued three requirements, one of which is to extend the benefit nationwide within this year, and that its implementation would influence officials’ performance evaluation.
　　Some governments, lacking the capital to build low-rent apartments, are looking at alternatives.
　　For instance, although Guangzhou implemented the low-rent housing policy in 1998, only up to 300 families’ housing problems could be solved each year, with an investment of millions of yuan. After seeing the difficulty of building low-rent apartments, since early 2005 the city has carried out a new policy. Instead of building houses, the government pays housing subsidies to qualified applicants. In less than four months, the housing problems of 486 families had been resolved, much quicker than in previous years.
　　Currently, Guangzhou’s housing policy has been used in many other cities and is gradually becoming a trend.
　　According to the Beijing Construction Commission, the city would also manage to solve the housing problems of needy families mainly through a rent subsidy policy, supplemented by low-rent apartments. By the end of 2005, 99 percent of the 14,000 families that are entitled to low-rent housing in the city received subsidies, while only 0.1 percent lived in low-rent apartments.
　　“However the measures are changed, the government plays the leading role, while non-public investment is only a supplement,” said Zhang of the Capital University of Economics and Business.

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