China Power

China’s Affordable Leap Forward

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China Power

China’s Affordable Leap Forward

China’s drive to make 20 percent of housing affordable by 2015 is welcome. But it’s not without its critics.

About this time last year, China announced a set of housing policies and targets for 2011. According to the plans, China aimed to build 10 million units of affordable housing to allow those on low incomes to either buy or rent those units. The move was aimed at quelling rising public anger over the growing number of people being priced out of the housing market because of soaring real estate prices.

Now the government has announced its housing policies for 2012. This time, though, the number of units slated to be built or renovated has fallen by 30 percent from the 2010 target, to 7 million.

Still, this latest plan is both more detailed and also more in keeping with the current reality in China. The new targets include both operating and completion costs, a decision that has generally been viewed as a positive, pragmatic move.

The building of so many units of affordable housing is part of China’s “great leap forward” in real estate reforms. And the government has an even more ambitious goal of making about 20 percent of housing “affordable” by 2015, a goal that if attained would radically alter China’s real estate market.

I remember last year hearing that the announcement to build 10 million units of affordable housing was made after Construction Ministry and local government officials had been locked in marathon meetings. Local and central government officials were apparently haggling over the details, with some in the regions worried that the boost to affordable housing would reduce local revenues and affect GDP growth (which in turn could put their jobs at risk).

Similar meetings were held this year, but they reportedly only lasted a couple of hours, as local and central government officials quickly achieved some kind of consensus – a rare feat in China.

By ensuring a good supply of affordable housing for its people, Chinese officials may actually also be creating another pillar for the economy. Construction requires the use of materials and labor, which can stimulate domestic demand and consumption.

Some have voiced fears that too much affordable housing will affect land prices, or even cause prices to drop, while others worry that the targets will encourage land grabs. But, broadly speaking, the move has met with approval from the general public, which had become concerned about soaring property prices in some cities. For example, recent research has shown that a growing number of graduates are planning to “flee” Beijing, Shanghai and other large cities, in large part because they don’t want to take on huge mortgages.

Right now, the going housing rate per square meter in Beijing is about 20,000 yuan ($3,160) – this in a city where the per capita annual income last year was by some estimates about 50,000 yuan.

It’s easy to see, then, why some might decide against setting up home in a place where an 80-square-meter home could mean going without anything else for the next 30 years.