Housing issues in Chinese city

(Chinese: Whole people discussion: A solution to China's housing price bubble)

Reported on 19, April, 2010, from Arizona. Chongqing, a southwestern city of China, also referred to as the "montainous city"on 12, April, a soothing rainy cold day alliviated somehow Chongqing's drought weather. The municipal mayor stated in the interview with "Economics Reference" on the house price issue in Chongqing. China is witnessing a roaring house price due to the vast amount of investment money rushing to the real state market. A booming economy has dragged the house price to extremely high, in first-line cities (一线城市) like Beijing, Shanghai, Shenzhen, etc. purchasing a house in downtown area is not any cheaper than in Manhattan or New York.



During the interview, the mayor casually grabbed up 6 cigarettes and the eloquence and confidence have deeply impressed the journalist. He said, in a market, where the real estate is getting up roaring all day long, metropolitan residents can no longer afford a house. In Shanghai, even it appears that white-collar employees moved to small cities. They once came to big cities with aspirations, but leaving with disappointment and sad. The mayor has a deep worry: this kind of brain drain is hazardous to a developing city.
Nowadays in China, the emergence of 公租房 (public rent house) has being a focus of discussing nationwide. The mayor said if all the officials can brainstorm somehow, the real estate soaring problem can finally find a solutions.

"On the high-end houses we should intensify our efforts to collect taxes."
Mayor Huang: public rent housing (PRH) is a great reform related to livelihood of the people. Since the 1950s to 1980s, under the China's planned economy model, the public housing came out a failure. That made all the officials and masses were living under poor conditions. Reforms and globalizations in the 1990s, we began to practice the land leased to public housing and new houses as commercial houses. Under the sheer track of market housing. Similarly, the pure track of market housing is also unreasonable. Always 30% to 40% can not afford housing, migrant workers and new grads can not afford a house rated even USD$ 600 per square meter. If make them really afford a house, a real estate comercialization is not sufficient.

Local government seems to coin out a lot of ideas, we found a way to engage low-cost housing. But who bought the low-cost housings are low-income families, they account for 3-4% in any city, that is to say, low-cost housings can not cater to majority populace.



In late 1990s, "Affordable housing (经济适用房)" was introduced as a guaranteed property, this kind of house can not be resold within first five years of purchase. But precisely AH has undergone a major conflict of interest and gray transactions. The so-called AH is the allocation of real estate, without receiving any tax, any matching fee and no real estate agency profits. For example, a house costs USD$ 700/square meter in the market, AH just costs USD$ 400. In the time of soaring house prices, up in five years, an AH house becomes USD$ 1500/square meter. And the property owner can resell. Go up at premium, the owner can simply quadruple the price. The income certificate of low-income households are managed by Internal Ministry, the fraud is difficult. But comprehensive meaning of "low-income", who can manage that? Every company manager can sign a "low-income certificate" for his employees, this is proven to be unavailable.

At this time, we propose a new system: a two-track system (双轨制), 30-40% of housing being PRH, and 60-70% housing belong to AH system. Then we can systematically bring PRH, AH and low-cost housing together.


If not the two-track system, even if the property tax is collected, it is not available. For all means, in developed countries, a considerable proportion of people live in rent houses.(Any source for american peers?) In America  for example, 65% of people buy house and 35% of people rent house. In Singapore, almost 50% of people live in rent houses and 50% buy houses. Why in a country like China will not like this? Therefore, the way to protect housing is not by private houses. Otherwise it will be a bottomless pit for nation's revenues.

I asked about my peers who study real estate, they say:

In America, normally, houses are in urban-rural frontiers, so-called less comercialized areas. Second, the constructors can not earn more than basic construction revenues. Third, these houses are sold according to anti-fraud low-income people. The most crucial point, if a low-incomer buys the house, anyway he want to resell, he can only resell it to a new low-incomer in his region. The specific way: the New York real estate board recovers the house and resell it to a new low-incomer. Fifth, in this process, all the transaction do not generate any revenue, that is to say, government will not collect any tax upon it. These are five clear principles, whereas a market-oriented way of housing will bring in a too chaotic protection and no succes..