china achieves record housing

HABITATINTL. Vol. II, No. 4,pp. 47-67,1987. 0107-3975187 $3.00 + 0.00 Printed in Great Britain. Pcrgamon Journals Ltd.

China Achieves Record Housing*

ERIC CARLSON? New York City, USA

In the past several years the People’s Republic of China has achieved a remarkable pace of housing construction, by far the largest in the world. In 198.5 total housing investment accounted for 8.35% of Gross Domestic Product (3.74% in urban areas and 4.61% in the countryside). An estimated 12.6 million dwellings were produced, 3 million urban housing units, and an estimated 9.6 million rural households built new homes.

However, despite marked improvement in urban living conditions in recent years, a comprehensive survey in 1985 showed that only 9.66 million apartments or 24% of the total urban housing stock, are now fitted with kitchens, flush toilets and other utilities. About one-third of all urban households have no kitchen or running water in their houses and two-thirds have no flush toilet. Another 10.54 million urban families are seriously in need of new housing accommodation.

Both the cities and the rural areas are in the process of rapid change, and posing new challenges for the planners. There are questions about whether investments in housing and urban development are sustainable at present high levels. There are also pressures for the application of reforms in this field, including structural changes, to enable more efficient utilisation of the funds and resources available and to meet the aspirations of the people in a modernising economy.

In May 1986 the State Council reaffirmed the long-term development target for housing: to provide a decent and practical dwelling unit for each household in the urban areas with an average per capita living floor area of 8 sq. m. Projecting this development goal to the year 2000, it is estimated that China will have to build 200 million dwelling units, equal to 13.5 billion sq. m of floor area. 155 million dwelling units would be for the rural areas and 45 million dwelling units for the urban areas. On average, the annual building programme would consist of 13.35 million dwelling units (10.34 million for rural housing and 3 million for urban housing). In addition, there is need to convert, retrofit or renovate about 30 million units of existing housing, providing them with independent kitchens and lavatories.

In the context of this broad scenario, and after five official visits to China, the author has arrived at some main impressions and observations, which are summarised in the following pages.

SOME MAIN IMPRESSIONS AND OBSERVATIONS - A SUMMARY

(1) China’s housing production is today the world’s largest, and represents an outstanding commitment and mobilisation of resources to provide decent

*This paper was first presented at the American Planning Association Conference, Session on Planning and Housing in China. 29 April 1987.

*Address for correspondence: Institute of Public Administration. 55 West 44th Street. NY 10036, USA.

HAB 11:4-D 47

housing for every member of the society, which represents one quarter of the world’s total population.

(2) The role and responsibility of the government for housing is still evolving, and additional policy and legislative measures are seen as necessary for comprehensive economic reform in this sector. Much new information is now becoming available from the results of the comprehensive housing survey-census undertaken in 1985. The Guidelines of Technicul Policy Concerning Urban and Rural Housing Development, endorsed by the State Council in May 1986, are an important step in defining action required.

(3) The existing stock of rental housing represents an important drain upon public resources because present rent levels have been kept too low and may only cover one quarter of the costs of management, maintenance and other factors. The government is therefore considering appropriate and manageable measures for rent reform. In the past several years for new housing the government has encouraged the sale of dwellings to work units and to individuals so as to enable a measure of cost recovery. The number of such projects has grown substantially.

(4) Important measures have been adopted to strengthen land use controls, and also the beginnings of a real estate tax system. The state administration of land was established in August 1986 to develop controls for all land owned by the state or by rural collectives. Authorities at various levels must approve land use proposals, and requirements have been set for land use fees and for relocation of residents displaced by projects. As of 1 October 1986, the real estate tax system approved by the State Council also came into force. A draft national land plan is being prepared under the State Planning Commission.

(5) A veritable explosion of new home construction is taking place in the townships and rural areas. At least 10 million dwelling units in 1986 have been built through the savings and efforts of the households, without any significant government assistance. As incomes have increased through the agrarian reforms, housing improvement, under conditions of full home ownership, appears as a high priority. One result is that standards of space and quality for rural housing is becoming superior to that available in the housing in urban areas.

(6) The construction industry reforms of the past two years have resulted in a competitive climate for contracting and building in the cities. So-called “farmers’ brigades” from outlying areas are frequently able to secure building contracts because of their lower costs. The China Construction Industry Association (CCIA) was established in September 1986, and includes representatives of specialised organisations involved with construction and building. The China Enterprise Corporation, with branches and operations in many cities has emerged as the leading builder of commercialised housing, for sale, in co- operation with local authorities.

(7) There is a progressive development of experience in the buying and sale of existing housing units, as particularly evidenced through the “House Swapping” or .‘House Exchange Fairs” in the major cities since 1985. 100 such events have now been held in 35 cities, and 360,000 families are said to have benefited, obtaining housing which better meets their needs and is probably closer to work.

(8) Major reforms and modernisation are taking place in China’s banking system, with the specialised State Banks being given more flexibility and responsibility for their operations. Since these reforms began, in early 1986, there is growing evidence of competition for business between these institutions, and at least two of them wish to promote much more savings and lending for housing.

(9) Since the end of 1985 a number of cities have been selected to demonstrate comprehensive economic reforms. as well as to undertake administrative

China Achieves Record Housing 49

reforms to improve their performance through strategic measures. In many cities, a Deputy Mayor is in charge of the housing sector, and the various bureaux and corporations which form part of the municipal apparatus for planning, construction and management. A HUD delegation noted that, in three cases, when asked about municipal priorities, the answers were essentially the same: housing, traffic and environmental pollution.

(10) Because of very low levels of investment in urban infrastructure for many years, there is now a need for massive upgrading of community services, facilities and infrastructure in most cities. The backlog will undoubtedly compete with the resources required for investment in new housing. The need for such infrastructure and facilities to accompany the building or renewal of housing will result in major increases in costing.

(11) Proposals for the sale of housing stock to existing tenants should be encouraged and they should be provided with several options and financial plans and explanations to facilitate their decisions on this matter. Offers to tenants could be repeated up to a certain cut-off date. Those who wish to remain, subject to rent increases, should be enabled to do so. Proceeds from such sales should primarily be placed in a Municipal Housing Investment Fund for use in improving the housing environment, through new construction or renewal.

(12) Guidelines should be promulgated and municipal authorities should assist in organising and establishing an alternative vehicle for provision of housing through a mutual or co-operative development system. This would involve a central Technical Services Organisation or mother society, to provide continuity, and to be open in membership to house-seekers and others. Such an entity would serve to organise effective market demand and sponsor the building and development of specific projects, including especially those for urban renewal, rehabilitation and smaller ventures. In some cases it could serve as a vehicle for organisation of co-operative housing associations to manage existing housing stock which has been sold.

(13) New instruments are needed to promote savings plans for housing, such as could be done most effectively by a specialised system for savings and investment in housing. Such systems are common throughout the world, and have an important role in promoting an increasing capital flow to the housing sector. As the existing State Banks have not developed adequate programmes for financing of housing and urban infrastructure and facilities, it would be necessary to consider the establishment of a new specialised State Bank, such as a China Housing and Mortgage Bank, subject to supervision of the People’s Bank of China. Such a Bank could raise investment resources in different ways, including the issuance of bonds or other debentures, for projects that would be self-financing. The Bank would also consider its participation in joint ventures, leveraging the use of its own resources. It would have supervisory and regulatory functions for the approved entities and institutions forming part of the savings and housing finance system.

(14) As discussions proceed with regard to the establishment of a pension system and social security fund, there should be consideration of the appro- priateness of housing sector investment as one of the elements of such new capital accumulation, and the specific modalities for this.

(15) There is continuing need for training of urban planners and other key professionals involved in the housing, real estate, financing, management and construction process. Opportunities should be sought for in-service training and other types of exposure to practical operations in different countries and settings.

(16) There should be a comprehensive study, review and report on the experience with enterprise investment in housing, their real costs, effects on production and modernisation, and alternatives and options.

50 Eric Carlson

(17) There should be a sample survey conducted of how rural housing is financed and constructed, acquisition of building materials and costs, and to what extent there is borrowing for loans, the securities required, whether there is incremental lending, and to what extent this is from family, friends and relatives or through formal institutions.

(18) While forms of commercialisation and ownership are being encouraged, it should be recognised that urban general plans do not make provision for land for private housing. This will require special attention and amendment.

I. URBAN CHINA: THE CURRENT SITUATION

Preliminary information has recently become available from the results of a nationwide building survey conducted by the Ministry of Urban and Rural Construction and Environmental Protection (MURCEP) and the State Statistics Bureau. This survey was launched in July 1985 and was the first such effort since the founding of the People’s Republic in 1949. Reportedly, a total of 730,000 officials and survey workers took part, covering 323 cities, 1.95 1 counties and 5,270 towns. The survey’s results will be further analysed and will also serve to compile national building data and a nationwide registration of property ownership.

The survey covered 4.67 billion sq. m of floor space in urban structures, valued at 467.6 billion Yuan (US$126 billion). Housing with a total floor space of 2.3 billion sq. m accounted for 49% of all existing urban buildings. On average, this gives every Chinese urban resident an average living floor space of 6.36 sq. m - considerably above previous estimates.

Despite marked improvement in urban living conditions in recent years, only 9.66 million apartments (24%) of the total urban housing are now fitted with kitchens, flush toilets and other utilities. About one-third of all urban households have no kitchen or running water in their houses and two-thirds have no flush toilet. Another 10.54 million urban families are seriously in need of new housing accommodation.

The survey showed that more than 90% of all properties had been built after the founding of New China in 1949, and that more than half of existing urban buildings owned by the state or public agencies were built in the past 10 years. Private properties accounted for 16% of all buildings covered. In countries and small towns, private properties were about one-quarter of all existing buildings.

Two tables provide the most recent information available on the progression of urban housing construction between 1949 and 1985, the end of the Sixth Five- Year Plan. Table 1 shows the “Area of Completed Urban Residential Structures”, and Table 2 shows “Capital Invested in Urban Residential Structures”. They were prepared by the Director of the Urban Housing Bureau of MURCEP, Mr. Lin Zhiqun.

These tables show the impressive increases in urban housing construction since 1979 and especially during the years of the Sixth Five-Year Plan. They also show that housing represented 20% of all investment in capital construction during this period, as an average.

In 1985 total housing investment accounted for 8.35% of Gross Domestic Product (3.74% in urban areas and 4.61% in the countryside.) In construction terms, this accounted for 153 million sq. m. of urban housing and 718 million sq. m of rural housing. An estimated 3 million urban housing units were produced, and an estimated 9.6 million rural households built new homes.

For the first time there has been official endorsement by the State Council, in May 1986. of a long-term development target for housing: to provide a decent and practical dwelling unit for each household in the urban areas with an average


Table I. Area of completed urban residential structures since the founding of the People’s Republic of China

Total 135705.9 109974.1 1950-1952 1462 1462 First Five-Year Plan 9454 9454 Second Five-Year Plan 11012 11012 1963-1965 4271 4271 Third Five-Year Plan 5400 5400 Fourth Five-Year Plan 12573 12573 Fifth Five-Year Plan 26688 23486

1979 7476.6 6255 1980 10210.9 8230.5

Sixth Five-Year Plan 64845.4 42316.1 1981 11068.7 7904 1982 13151.5 9019.6 I983 12947 8124.5 1984 12354.3 7703 1985 15322.4 9565

12279.6 3997.9 9454.3

1850 452 900 300 171.6 250 100.4

1050 280.4 650 113 10429.6 3545.9 8554.3

1439.5 425.2 1300 128 2108.5 661.4 1362 135 2654 790.4 1380.1 150 2207 772.3 1672 160 2020.6 896.6 2840.2 177

Key (I) Total (2) Capital construction investments (3) Converted capital (4) Capital invested through “System of Collective Ownership” (5) Privately owned buildings (6) Construction cost per square metre (RMB, Yuan)

(1) (2) (3) (4)

Unit: 100,000 sq. m

(5) (6)

Table 2. Capital invested in urban residential structures since the founding of the People’s Republic of China

Total 1950-1952 First Five-Year Plan Second Five-Year Plan 1963-1965 Third Five-Year Plan Fourth Five-Year Plan Fifth Five-Year Plan

1979 1980

Sixth Five-Year Plan 1981 1982 1983 1984 1985

Key

(1) (2)

1582.8 1286.4 8.3 8.3

53.79 53.79 49.56 49.56 29.09 29.09 39.32 39.32

100.74 100.74 294.49 277.29

78.33 77.28 127.36 111.66

1007.5 728.34 145.1 111.19 187.65 141.05 188 125.1 195.9 135.8 290.9 215.2

(3)

167.1

8.4

8.4 158.7 20.4 28.8 41.9 34.3 33.3

Unit: RMB 100 million Yuan

(4) (5) (6)

58.6 70.7 10.6 9.1 4.1 6.9

887.04 4 5.7

3.3 5.5 11.8 1.5 14.8

3.3 4 20 55.3 65.2 21

6 7.5 25.1 9.2 8.6 25.4

11 IO 21.1 12.2 13.6 18.3 16.9 25.5 20

(1) Total (2) Capital construction investments (3) Converted capital (4) Capital invested through “System of Collective Ownership” (5) Privately owned buildings (6) Amount of housing construction capital as a percentage of all capital construction investments

per capita living floor area of 8 sq.m.* This was contained in the Guidelines of Technical Policy Concerning Urban and Rural Housing Development, co- sponsored by the State Science and Technology Commission, the State Planning Commission, and the State Economy Commission.

Projecting this development goal to the year 2000, it is estimated that China will have to build 200 million dwelling units, equal to 13.5 billion sq. m of floor

*In China, the term living area excludes kitchen, bathroom, balcony, stairways, corridor, etc. With these latter included, total floor space is about 16 sq. m.

area. 155 million dwelling units would be for the rural areas and 45 million dwelling units for the urban areas. On average, the annual building programme would consist of 13.35 million dwelling units (10.34 million for rural housing and 3 million for urban housing). In addition there is a need to convert, retrofit or renovate about 30 million units of existing housing, providing them with both independent kitchens and lavatories.

The impact of this large volume of new building on the economy can be seen from the estimates of average annual demand of construction materials during the Seventh Five-Year Plan: for steel, about 19.7 million tons; for wood. 37.7 million cu. m; for cement, 62.86 million tons; for brick, 208.9 billion pieces. These estimates do not include the requirements for kitchen and sanitary equipment for about 30 million existing units.

Both the cities and the rural areas are in process of rapid change, and posing new challenges for the planners. There are questions about whether investments in housing and urban development are sustainable at present high levels. There are also pressures for the application of reforms in this field, including structural changes, to enable more efficient utilisation of the funds and resources available and to meet the aspirations of the people in a mode&sing economy.

One estimate, based on a projected population in the cities of 240 million by the year 2000 shows a total housing requirement of 2.4 billion sq. m which would need an investment of 406.4 billion Yuan or 27.2 billion Yuan yev cmnum, at a construction cost average of 160 Yuan per sq. m (as in 1984). If 20% of capital investment continues to be put into housing, and if the goal of quadrupling income is achieved, each year there would theoretic~~liy be 28.05 billion Yuan available for housing investment - more than the 27.2 billion Yuan as in the above calculation.

But, in the past 2 years, construction costs have been rising considerably. These vary from city to city, but in Shanghai, for example, 360 Yuan per sq. m is now commonly used for estimating construction costs, presumably including necessary infrastructure. The realistic costs of acquiring land have also increased. even in the fringe areas, with the compensation requirements -- relocation of existing tenants or to farmers for the productive value of their land. Another growing burden are the low rentals which presently prevail, which arc totally inadequate even to cover the costs of maiI~ten~~nce and m~~nagement. much less to amortise cost recovery or other factors. The more housing that is constructed, the higher this burden becomes. One calculation for the period of the Seventh Five-Year Plan assumed that with an annual development of 150 million sq. m of urban housing, at a construction cost of 200 Yuan per sq. m, the annual input requirement of capital will be 30 billion Yuan. But to this must be added an additional 10 billion Yuan for subsidy payments, for increases in costs of materials, maintenance and the total housing development generally.

The basic factor is that there is no economic return of the capital invested in housing and there will not be until there are reforms with respect to the concepts of management of the existing urban housing rental stock, representing perhaps 82% of the housing in the cities.

Rent reform, the raising of rents, has been heralded as essential if there is to be progressive improvement of housing conditions. This is one of the key ways to reduce the state’s burden of subsidisation of the housing stock. This would be in the context of the urban reform movement underway during the past two years, which, it is hoped, will be equally as effective as the rural reforms implanted ten years ago. The rural reforms were a great spur to agricultural productivity, and enhanced income for farmers and peasants in many provinces. Because incomes of urban residents generally are still quite low, it is clear that well-considered strategy and measures for increasing income from rents must be accompanied by reforms and increases in salary and wage structure of urban workers. An


alternative or parallel path is to develop a system and procedures for sale or conversion of existing housing stock, and thus obtain some capital return on original investments, or to reduce the subsidisation burden. For the most part there should be an effort for all new housing projects to sell off dwelling units either to work units or to individuals.

Much discussion and debate in China has revolved around the phrase “commercialisation of housing”, which retains an ambiguity of concept and definition, but is an attempt to deal with housing as more of a commodity and less of a social welfare service. It involves the effort of providing alternative forms of financing and investment for housing in urban areas and the promotion of private sale of housing to enable a degree of home ownership for urban residents. In the rural areas these questions do not arise because the farmer or peasant has full home ownership, except for the underlying land, which remains in property of the collective or local government. Most of the housing stock in urban areas, however, is highly subsidised, under rental tenure, and representing a negative rather than a positive return on the massive investments that have been made to date. Beginning in 1982 with the designation of four demonstration cities, the government is now encouraging the sale of new dwelling units. Cities are encouraged to allocate a percentage of new housing built for such “~ommercialisation”, and steady progress is being, although with different modalities in the various places of implementation.

As yet, however, China does not have a specialised system for housing finance which could facilitate this process. There is no State Housing and Mortgage Bank or regional affiliates. There is no standardised mortgage documentation. There are no financial entities devoted primarily to savings promotion and housing finance, such as exist in many other countries. These would include, for example, the savings and building banks (Bausparkasse) of Germany and Austria; the vast building societies of the UK, Australia, New Zealand, Ireland, Caribbean and the African countries; the savings and loan associations or banks of the USA and South America; the co-operative housing societies of the Scandinavian countries; the housing associations of the Netherlands; the housing co-operatives of the Socialist countries, and many other examples. In some other countries, the commercial banks and savings banks may participate in the specialised housing finance systems.

Most countries have types of organisations which provide linkages for organising effective market demand for housing. They will develop, promote and stimulate savings programmes, with the ultimate objective of providing loans for home ownership, known as mortgage lending. There is usually an appropriate authority, such as a national housing and mortgage bank, ultimately responsible to the central bank, which supervises the components of the housing finance system, making available funding, credit and technical assistance, as required. In the USA, for example, the housing finance system is supervised by the Federal Home Loan Board, and a network of regional home loan banks is established in major cities. In the Scandinavian countries, in addition to the government authorities, there are central membership and technical service organisations who work to promote and to organise co-operative housing societies and corresponding projects for their membership, which is open to all. One of the oldest of these is the Swedish HSB - the Tenants Savings and Building Society, created after World War 1.

This is quite a different type of pattern from that prevailing in China, where housing is allocated on a rank system, and there may be wide divergences in the capacities of the work units to provide housing for their employees. If a work unit or enterprise is regularly losing money, and has no profits, such as a bus company in a large city, it will indeed be difficult for its workers to obtain decent housing within any reasonable period of time.

54 Eric Carlson

The crowded streets and shops of the cities visited in China attest to the dynamism and vitality of the current urban scene. It is a time of growth and transition. The role of cities and municipal management in the national economy is being given increased attention. The Deputy Mayor is typically in charge of the municipal apparatus for deating with housing and other pressing problems of urban structure and facilities. In the three places visited while with the HUD delegation, Wuxi, Suzhou and Shanghai, all three Deputy Mayors said when asked that housing, traffic, and pollution were the three main priorities of their municipalities.

Because of inadequate investments in urban infrastructure and community facilities over past years, many cities now find that they must do a great deal to catch up with these needs. The improvement of highways and traffic movement is one aspect. Currently in China there are 45,000 buses and trolleys; 27,000 taxis; and 400,000 automobiles. But there are also 160 million bicycles, with most of them concentrated in the large cities. If movement is so difficult now. one can imagine the future, with a massive onsiaught of private automobiles seeking urban entry. Highways are the responsibility of local government, but funding allocations for highway improvement have been meagre. A new tax imposed in May 1986 of 10% for domestic cars and 15% for foreign cars has already produced 1.2 billion Yuan available for highway funding this year. China has only 400 km of limited access highways, and the Seventh Five-Year Plan calls for upgrading 80,000 km of existing highway and building 60,000 km of new highway.

The installation of sanitary sewers, involving issues of water and air pollution, are difficult and vexing problems for many urban areas, especially with the growth and expansion of small industries and enterprises without environmental controls in place. Parks, green areas, and tree planting programmes are receiving increasing attention in most cities. But, with some exceptions, there has been a considerable decline in urban and cultural amenities and facilities, bookstores, libraries, sports facilities, schools and museums among others for the most part need new investment and modernisation.

The comment has been made that urban infrastructure and facilities have too often been dealt with as social welfare, and much could be done to impose realistic costing, encouraging the privatisation of some services, and giving frank recognition to the fact that urban services are essential and a major reflector of urban life quality. Reportedly, in past years, the sum of nationwide expenditures for these activities was lower than 5% of the total state capital construction budget. The many questions involved in planning, constructing, costing and managing urban infrastructure and services are beyond the scope of the HUD delegation’s purview. But a future special effort could well be useful and productive. to review and suggest standards and procedures in this whole field.

As for the urbanisation scene in China today, it is taking on some special characteristics. There are 324 cities {over 100,000 population); and 7,511 towns with administrative status. By 1990 the total number of cities will increase to some 400 and the number of towns with administrative status will be more than 10,000.

The non-rural population in urban areas has been increasing steadily since 1978, so as to total 16.77% of the total population, or 175.47 million in 1985. Although the countryside has been undergoing a profound reform, especially with the development of township enterprises and industries, there is a large surplus of agrarian labour which is likely to grow. The pace of urbanisation will therefore increase, and expectations are that it may reach around 40% or 480 miilion by the year 2000.

Much of this growth will occur in the 55,000 townships in China, many of them centres of the former People’s Communes. In towns or townships the core of


inhabitants is composed of non-rural population with urban household registration certificates. The rest of the population may have migrated from neighbouring villages, they may be mobile individuals or households from other countries, prefectures or even provinces.

It is in the towns and townships that a revolution is taking place. Township enterprises are growing and flourishing. Most of these are collectively or privately owned, small in scale, flexible in management, and more efficient. The capital asset per employee is much less, and the profit gained per employee is much more than in the large state-owned enterprises.

By the end of 1985 there were 12 million township enterprises, employing 70 million people, 19% of the rural labour force. In 1985 while the average income for a rural labourer was 462 Yuan, township enterprise employees earned 2729 Yuan. Township enterprises offer a way to accumulate funds for rural industrial expansion. In the first half of 1986 they grew by 18.8%) and had a production of 123.2 billion Yuan (US$33 billion).

By the year 2000 the total population of the 10,000 towns with administrative status should be around 100 million. Another 20,000 towns may reach a total population of 100 million, and the remaining 30,000 or more townships with 1,000 to 2,000 citizens will have a population of about 50 million. In total, there would be about 250 million in the towns and townships, about 20% of the projected 1.2 billion population of the year 2000, or one-half of the non-rural population at that time.

The trends indicate, therefore, that the Chinese settlement system will have three principal components, not just “urban” and “rural”. There will be cities and urban centres; towns/townships; and villages.

Reportedly, 98% of the cities have development plans, and the past 5 years have been a remarkable period of urban construction. Some have made great strides in environmental protection and urban greening, such as Tianjin, Hefei, Beijing and Lanzhou. But cities are still under pressure to speed up construction, and there is greater recognition of the role of the construction industry as a leading factor for modernisation and development.

Administrative reform is underway in 16 medium-sized cities: Jiangmen, Dandong? Weifang, Suzhou, Wuxi, Changzhou, Ma’anshan, Xiamen, Shaoxing, Anyang, Luoyang, Huangshi, Hengyang, Zigon, Baoji and Tianshui. The main goal of the reform is reinforcing co-ordination among managers of the local economy, streamlining or merging administrative sections, redefining the district governments’ powers, changing the personnel system and separating Party work from government work. Since the end of 1985 seven cities have been serving as models for comprehensive economic reform: Shashi, Chagzhou, Congquing, Wuhan, Senyang, Nanjing and Dalian.

In some cities there is a trend towards encouraging people’s participation in projects for building or improvement of civil infrastructure. The municipal governments urge enterprises and individual residents to contribute capital or labour. Examples may include the provision of running water to some residential areas: connecting individual enterprise road or pipeline systems to the municipal system, etc. In some coastal towns and cities, donations from overseas Chinese have contributed substantially to urban financing. It seems clear that, in the future, municipal governments will have to finance public projects mostly through: locally-generated funds, including local taxes and surcharges; user charges and fees; issuing bonds, etc.

Land resources

China’s differentiated policy for urban development is “to control the size of big cities, to develop medium-sized cities rationally and to build small towns activeiy”.

56 Eric Cnrlsan

The rational utilisation of scarce land resources in China is an important factor in this urban development policy. Although China is a large country, there is an uneven distribution of population and the relative scarcity of land differs from one region to another.

The public ownership of land in China takes two different forms: state ownership in the urban areas and collective ownership in the rural areas. State regulations for requisition of land provide that the state must pay the collectives or peasants compensation for the occupation of land if a project is to be built in a rural area. Such compensation for the occupation of cultivated land is an amount equal to 3 to 6 times the value of the annual yield from the occupied plot; compensation for immature crops if there are any; compensation for objects removed to prepare sites; costs involved in redeployment of labour. The actual amount of compensation fees is determined jointly by the local government agency, the state-run enterprise that is to occupy the land and the original owner of the requisitioned land. Such compensation fees, though arbitrary, can reach significant levels.

This has important effects for development. If an enterprise wishes to relocate in a rural area. it must pay the cost which will involve borrowing funds and paying interest charges. But if it remains in an urban location, it pays almost nothing for the use of land even in a densely populated city. This favours continued concentration of industries in urban areas.

Public land ownership in China, which is based on the Chinese Constitution, has many aspects, and some of these will be dealt with as follows:

1. Establishment of the State Administration of Land, in August 1986, to develop controls for all land owned by the state or by rural collectives. Real Estate sales are prohibited and developers must receive state permission to build on any parcel of land, being subject to land use fees which may range from 10 to 300 Yuan/sq. m depending on location. Developers must also take responsibility for relocation of residents displaced by projects. Payment up to 20 times the value of average annual production may be required. Land use fees will go to the government .

2. There is to be a nationwide land survey to determine property ownership and to issue land certificates to rural collectives. Under the new law authorities at various levels must approve land use proposals. A draft national land plan is also being prepared under the State Planning Commission. This will cover natural resources, productive forces, comprehensive regional development and management of land. There will be a stress on higher efficiency and control of use of land for construction purposes.

3. In October 1986, a real estate tax system was established, as approved by the State Council. This is to be paid by the proprietors or work units, or the mortgagee responsible for tax payments. The real estate tax is calculated on the basis of residual value after one-time deductions of lo-30% on the original value of property. as decided by provincial, regional or municipal governments. The taxation departments certify the value, by comparison with other properties. The tax is at the rate of 1.2%, with 12% levied for estates on the basis of their rental income. The tax does not apply to state work units, public organisations or the military forces. It is collected by the taxation departments in the locality.

A fundamental observation on the land questions is that present municipal or urban plans apparently have no provision for land for private housing such as is being built in the townships and rural areas. This is a matter that would seem to deserve special study and attention, as there are rich farmers who may wish to build housing in urban areas, and in other cases there is need to provide for projects which will provide for sites-and-services and encourage self-help or self- financed building. It should be up to MURCEP to promote acceptable guidelines.

Chinu Achieves Record Housing 57

II. HOUSING FINANCE. CAPITAL FORMATION: SOURCES OF FUNDS AND TYPES OF INSTITUTIONS

Housing finance systems remain to be developed in China. The subject itself is not well understood because, in a socialist state, the allocations and guidelines for housing investment are provided through a national planning process, evidenced in the five-year plans. Resources are then made available through the municipalities and local governments according to their municipal plans. The provinces and autonomous regions each have their own Urban Development Bureaux to oversee housing construction. In the cities there are Capital Construction Commissions and Real Property Management Bureaux which are responsible for housing administration. Some cities have so-called “Unified Housing Development Offices”, the purpose of which is to co-ordinate and provide leadership to a wide array of housing development activities. The Real Property Management Bureaux are responsible for property management, but there are separate companies under the Bureau, such as a housing maintenance company, a building materials and equipment company, and others. More recently, the Bureaux have added another element, at least in some cities, the China Enterprise Corporation, whose main objectives are to promote the commercialisation of housing, and specifically the building of housing for sale and home ownership. The structure for housing in Shanghai is especially important, as Shanghai is recognised as a leadership city in developing comprehensive approaches to its serious housing and urban development problems.

Enterprises and work units generally are responsible for providing housing for their employees, and use their profits or welfare funds for such purposes. They are subject to direction of the Municipal Real Property Management Bureaux. Larger enterprises may have their own organisations to deal with their responsibilities in this field. Smaller enterprises, and especially those that do not produce profits, find it difficult to comply with their responsibilities for housing investment. The complexities of obtaining land and approvals at the municipal level, and the inequities resulting from the procedures of allocation, construction, subsidisation and management are well-recorded in an enlightening study of housing in Beijing. That Beijing is not a unique case is evident from other reports. In Nanjing, for example, an enterprise intent on obtaining housing for its workers was required to obtain 58 permits from different organisations.

It seems evident that a comprehensive study and report should be prepared to evaluate the experience with enterprise investment in housing. This should be a major element in considering the formulations of new housing policy and in providing guidelines and regulations for the future. Are there alternatives to enterprise investment in housing, and how can they be developed? Are there ways that enterprises can sell or divest themselves of the ownership of their housing stock, and thus assist in re-capitalisation or modernisation of their productive functions ? Should there be consideration of differences between types of enterprises, such as universities, industries, municipal management, state ministries? There are many questions that could be pursued once more basic facts are known. Enterprises have generated a considerable portion of the capital formation for housing to date, especially as direct state investment for housing has decreased in the past several years. Whether this is the course for the future remains to be determined, as China’s rapid development moves it forward from a typically early industrialisation stage into a more modern and dynamic society where economic flexibility becomes more paramount, and where financial institutions and services and the development of capital markets become prime factors in the operation of capital flows.

Capital investment in housing construction in China has risen rapidly in the

58 Eric Cadsor!

1980s. For 1983, official statistics show that such investment had risen to 7.78% of the estimated Gross Domestic Product and in 1984 it was 7.01% or 46,561 million Yuan of the official GDP figure of 664,300 million Yuan for that year. In 1985 it was estimated that total housing investment accounted for 8.35% of GDP. Table 3 shows statistics of Fixed Asset Investment of the Whole Society in 1983-84.:”

It will be noted that a prodigious increase in building of housing in rural areas has occurred. Rural construction is financed and built by the people themselves, requiring no subsidy from the state. No information appears to be available regarding the extent to which the population in townships and rural areas requires capital funding other than from their savings, in the form of loans from existing financial entities. This should be the subject of a reasearch project, as it has implications for the development of financial institutions in townships and rural areas, and the types of operations for which savings programmes could be promoted as well as types of lending and investment for new construction or housing improvement, as well as for the financing of infrastructure.

Given the situation of capital shortage in China for its vast development needs and to achieve the objective of quadrupling national production by the year 2000, it is anomalous to note that the investment of resources in housing by the state in urban areas yields no return of capital or cost recovery. Rather the situation is such that the more that is invested in housing. the more capital is required for increasing subsidies for the larger housing stock. An example given is that if the Seventh Five-Year Plan calls for an annual development of 150 million sq. m of urban housing. at a construction cost of 200 Yuan per sq. m, than the annual input of capital required will be 30 billion Yuan. To this must be added an additional 10 billion Yuan for subsidy payments, for increases in costs of materials, maintenance, and the total cost of housing development generally. Depreciation and amortisation costs simply are not factored-in. While per capita

incomes have grown to some extent, the percentages of household income devoted to rental payments have steadily declined to percentages of well below 5% - in some cases. as reported, to the level of expenditures for tea and cigarettes on a monthly basis.

There is a steady process of decapitalisation affecting the housing effort of China. If the true values of housing wer recognised, on the other hand, it would be of substantial importance in enhancing capital formation at many levels. In many countries housing stock represents the nation’s major capital asset. In the

Fixed asset investment 1. State housing projects

a. Capital construction b. Renovation. reconstruction. PI<

2. Collective housing projects a. Urban b. Rural

3. Individual housing projects a. Urban b. Rural

Investment in 19X3 Percentage

100 40. I 30. I IO. I 4.6 2.7 I .o

55.3 3.x

51.5

Unit: 100 milhon Yuan Investment in I984 Percentage

-W.f,l 100 l6S.87 X.3 134.50 ?S.!, 34.37 7.4 ??I).?7 h.5 17.23 7.h IX.04 3.9

X6.47 57.7 77.09 5.x

239.38 51.4

Figures are from Extract.\ of Chinese Statistits: /YM. p. 63 and E.vtrum of‘ Chirwsr .Sta/r.\ticst IYNS. p. 66.

*As reproduced from the article hy Lin Zhiqun: “On the Construction. Use and Expenditure of Housing”. China City Plnmi~g Review. Vol. 2. No. I. June 1086.


USA, the capitalisation of the housing stock now represents an amount of US$2 trillion, which is primarily based on a system of home ownership by individual households.

Capital formation for housing in China is an elusive subject, although there are emerging new developments in this area which may have considerable significance. One main problem is that there has existed to date little interplay or discussion between those responsible for formulating housing policy and guidelines, technical standards, etc., and the institutions which may have an increasing role in financing housing, in particular through the specialised State Banks. Although there was a major banking reform in early 1986, encouraging a much greater degree of flexibility for the operation of these Banks and the financial institutional scene generally, apparently there still are no guidelines for their operations with respect to lending for housing, to municipalities, to enterprises, or to individuals. 1986 was a year which witnessed an emerging utilisation of capital markets for bond issues by municipalities and enterprises. In at least a few cases noted, these bond issues have included provision for investment in housing. These bond issues have advantages and permit a higher rate of return - perhaps 10-l 1% in 1986 - than is available through deposits in the banking system, which may be in the range of 3 or 4 points below. In consequence, according to reports, there is substantial public demand for these bond issues. In Shanghai there has been a limited effort to issue bonds, encouraging savings for housing, but in spite of high demand this exercise requires further study and evaluation.

Other sources of funding for housing investment have traditionally included loans of government organisations and institutions, funds raised by the enterprises or organisations, construction funds from investment in capital construction, and from investment in industrial development. There is no regularised or consistent funding system, nor does the state have any real control over the annual scope of investment in housing. Of course, funding is not the only problem. The needs for pre-investment financing also seem to be large. The procedures for obtaining approvals for land acquisition and construction are complex and tedious, but they are tied in with allocation of building materials, detailed planning and design, and security of agreement and priority listing by a construction company. The Bureaux of Real Estate Management may tend to get overwhelmed.

All of the State Banks are authorised to accept deposits and to make loans or invest in housing. The two main ones which have engaged in this type of activity are the China Industrial and Commercial Bank and the People’s Construction Bank. The specialised banks may issue savings bonds to the public and finance loans to enterprises. All can issue bonds and offer house-buying savings accounts.

The China Industrial and Commercial Bank (CICB) was established in 1984, taking over the business of the People’s Bank in industrial and commercial credit and savings deposits. It has 14,000 savings offices, about 400,000 employees, and over 200 million individual savings accounts. By the end of September 1986 it had savings deposits totalling 112.5 billion Yuan (about US$28 billion).

A fast-growing category of the Bank’s lending activity has been that of loans for housing and durable consumer goods. It grants loans for housing, including building, buying and improvement. Loans to individuals are made on the basis of linkage with savings deposits, which typically should amount to about 50% of loans. The CICBC has opened special accounts for savings deposits for housing, which totalled 100 million Yuan in September 1986. The savings deposits yield a modestly-higher interest rate return. Loans for housing had totalled 400 million Yuan. The estimate by one bank officer was that the CIBC could achieve lending for housing to total 10 billion Yuan per annum by the year 2000.

60 Eric Carlsorl

The People’s Construction Bank by 1986 had loaned 3.9 billion Yuan for construction of private housing projects and various enterprise urban development projects. About 56 million sq. m or one million flats have been built with loans from the Bank, of which 48.5 million sq. m have been sold. The Bank reportedly had available in 1986 one billion Yuan for land development and for housing for sale.

In September 1986, it was reported that total savings in the State Banks were 203.31 billion Yuan, of which the urban portion was 134.71 billion and the rural. 68.7 billion. Savings deposits have been rising at a rate of over 30% per annum.

In some provinces, private and co-operative banks have supplied a large portion of the funds required for industrial and commercial businesses. These provide a channel for farmers who have surplus funds to lend to others. In one reported example, rich peasants near Shijazhang City (provincial capital of Hebei Province) used their income to build a substantial number of housing units in the city, and then sold them at competitive market prices to the urban residents. The modalities of this would seem to deserve a specific case study.

Most enterprises have established collective welfare funds, which may comprise about 30% of income after having turned over profits to corresponding agencies and after taxation. Many of these funds have been channelled to build houses for employees or to run kindergartens and other welfare activities. Because private ownership of housing is now being encouraged, the proportion spent on housing for sale may rise substantially in the future.

If the proper strategy and modalities can be worked out, a major future source of funding for investment in housing on a long term basis could be through a plan to permit borrowing from retirement and social insurance resources. The Singapore plan is perhaps a model in this respect. but there are others, and China would develop its own system. There are now different retirement fund arrangements prevailing in the cities and enterprises. In Beijing. there is an Employees Retirement Benefit Fund, derived from 11.5% of annual wages of state-owned enterprises. and currently there are reported to be 500,000 retired workers in the system. Nationwide there are reportedly 16 million retired workers, with 40 million expected by the year 2000. The total cost of pensions in 1985 was 14.2 billion Yuan ($3.8 billion), averaging 935 Yuan per ann~m per person. Pensions now account for 10.7% of the total wage load in state run enterprises, which is expected to grow to at least 15% /ler annum by 2000.

The State Planning Commission is studying the need for reforms and the possible establishment of a collective pension fund and new national social insurance. This would mean a new national social insurance law, incorporating a workers tax. This would include workers in collectively and privately run enterprises and rural Farmers. One proposal has been that a Social Insurance Foundation should be established. with enterprises paying in a percentage of their total wage bills, and with benefits avoiding discrepancies between old and new organisations.

Commercialisation of housing in China today

Since the beginnings of “commercial” housing in 1982 in four pilot cities, there has been considerable progress in the promotion and acceptance of the idea that there should be cost recovery for housing investment. Now in some cities housing has been constructed with rents at a level permitting some degree of cost recovery. In Shenyang, one of the first four cities, the city housing authority in the first year recovered 28% of its investment for the housing built.

The government is also encouraging private ownership, and work units buy much of the housing constructed by the municipal housing authority priced at about market level. Some housing remains for sale to individuals. Typically, the


state subsidises one-third of the cost, the individual’s employer pays for another third, and the worker agrees to pay for the remaining third. For the worker’s one-third, he may sometimes only make a 20% down payment of this amount, obtaining a bank loan for the rest.

One of the most active builders of commercialised housing is the China Enterprise Corporation, established in 1981, which has become the biggest real estate development enterprise in China. The Corporation has 125 branches in the nation’s 27 provinces and autonomous regions, and a staff of 15,000. In 1986 it began housing construction of 19.53 million sq. m, and expected to complete by year end about 9.51 million sq. m, or about 140,000 apartments. Table 4 shows how its work has grown over the five-year period.

About 80% of the present buyers are work units which need apartments for their growing staffs. Since 1979, only 3% of housing production has been sold to individuals, 97% to state or collective enterprises. However, the state sets a limit on what each enterprise can spend on housing for its staff and workers. By the end of 1985, 15 billion Yuan had been invested in commercial contracts ($4 billion) for housing. In 1985 32.8 million sq. m were constructed, costing 6 billion Yuan ($1.6 billion). This represented 25% of the total investment in housing. There are now more than 1,600 housing development corporations around the country.

Recent reports indicate that the situation is not one of total rationality, however, even though it is estimated that the state has already recovered from commericalised housing construction about 1.04 billion Yuan ($280 million). There is no general plan and some corporations are building housing on their own. The state knows little about how much or what is for sale. There are too many construction companies in some cities, with Xian reportedly having 55 housing development companies. In Tianjin 600,000 sq, m of constructed housing has remained unsold. Project costs are rising sharply, and in Beijing are now estimated at 400 Yuan per sq. m ($108), which includes construction fees, land use fees, cost of utilities, roads, schools and neighbourhood administration. Actual housing construction costs are 200 Yuan ($53).

Citing statistics that average rent for housing in the cities is only 0.08 Yuan per sq. m, and that rents take only 3% of a typical 5 member household income, an official of the China Enterprise Corporation recently urged remedial action, and proposed that rents should be raised by 20% and house prices should be fixed at 200 Yuan/sq. m, to allow for cost recovery.

In Shanghai, commercialisation of housing began in 1984, and this activity was initiated as a department of the Housing Bureau. For 1986 there was under construction 1.19 million sq. m of housing. 480,000 sq. m were to be finished by the end of 1986, with 350,000 sq. m scheduled for sale. The local government provided the funding. Most of the housing was to be sold at full cost to professional organisations, overseas Chinese and foreigners, with only 10% to staff and workers. The full price in Shanghai was now at 360 sq. m outside the

Table 4. Increase of China’s commercial housing

Year

1982 1983 1984 1985 1986

Total

Building areas

(sq. m)

615,000 1.22 m 5.79 m

15.58 m 19.54 m

42.8 m

Completed areas

(sq. m) Completed flats Business turnover

(Yuan)

461,000 8,700 74 m 0.69 m 13,100 80 m 2.59 m 48.900 550 m 6.89 m 98,400 1432 m 9.51 m 13.5,600 2000 m

20.15 m 304,700 4136 m

(According to the China Housing Development Corporation.)

62 Eric Carlsotl

inner core ring, with higher prices in the core itself and other gradations of pricing depending upon location and situation with each building. According to the Corporation, prices for apartments for sale are increasing sharply and now are 1,000 Yuan/sq. m in Beijing, with demand strong. In most cases, the city Real Estate Management Bureau assists in organising effective market demand between and among enterprises and other organisations when large projects are considered and planned for building. There are now cases where the housing needs of 50 or more enterprises have been combined to enable the financing and construction of projects.

One example is the Fazhuang housing project in the South-East of Beijing, for 21,000 families by the end of 1992. This will not require state funding. Rather, enterprises and other investors are welcomed to provide for funding of construction. All apartments are to be sold to individuals. with three grades of construction, ranging from 66 to 108 sq. m. The project will include all infrastructure, roads, water, sewers, telephone service, efc.

In Shanghai another such large project has been planned for between the airport and the central city. It will include office and commercial space, buildings for diplomatic functions, and high and low-rise construction. It is contemplated that all construction will be sold at full cost.

With such trends becoming apparent, housing may no longer continue in its “loser” role within the national economy, but construction will be increasingly considered as a vital producer of national wealth and capital.

HI. HOUSING FINANCE. AFFORDABILITY PROBLEMS AND OPTIONS

Generally, average incomes in the urban centres of China remain low. especially considering the devaluations which have taken place over the past 2 years, and which now place the Yuan in relation to the US dollar at 3.7. We can assume that many household incomes are at a level of about 100 Yuan per month or less. A typical pattern of expenditures in percentages, as between commodities and non- commodities is shown in Table 5.

In terms of percentage of total living expenditure, house rent had declined to 1.39% in 1984. If electricity and water are included, the sum total of housing expenditure was 2.51% in 1984. Even with families of varying incomes there was little difference between the lowest and the highest. averaging 1.52% for rent and 1.14% for water and electricity, to total 2.66%. Although the percentage of income devoted to housing is small. it must also be remembered that the overall incomes are limited, and do not provide much leeway for rent increases at the present time.

There is a contrast with the pattern prevailing in the rural areas, where economic reforms have enabled a considerable increase in productivity and income in a number of provinces. In such areas there has been a marked increase in per capita housing expenses, and in the percentage of per capita housing expenditure. As Shanghai’s average per capita agrarian output value grew to 844.72 Yuan in 1983, per capita housing expenses rose to 152.50 and the percentage of living expenses for housing was 29.81. In four other provinces and municipalities, the per capita housing expenditure in 1983 was 15-17X of the per capita living expenditure.

One of the consequences of the above situation is that the quality and size of housing in rural areas is improving rapidly. In terms of living space and amenities it is tending to surpass that available in the cities, where 50 sq. m is now considered the appropriate size for housing units over the course of the Seventh Five-Year Plan. In many rural areas, the two-storey houses typically constructed offer from 70 to 120 sq. m of living space. It can be expected that appropriate


Table 5. Statistics of a sample survey of the income and expenses of families of urban staff and workers: a breakdown of living expenses

Description 1957 1964 1978 Year 1981

Living expenses I . Commodities

1.

2. 3.

4. 5. 6. 7.

Food a. Grain b. Non-staple foods c. Tea, cigarettes. beverages d. Others Clothing Articles of daily use

Articles for recreation I

Books, newspapers, magazines Medicine. medical equipment Fuel

II. Non-commodities 1. Rent 2. Water and electricity 3. School fees 4. Child care 5. Transportation

6. Letters, telegrams 7. Recreation

100.00 85.89 58.43 22.76 26.81 4.00 4.86

12.00 5.12 - 7.93

IO.98 13.55 14.79 5.98 8.41 9.56

7.62 5.67

0.59 1.84 3.89

14. I I 2.32 1.46 0.65 1.30

1.00 1.14 1

5.17

2.38

, 1.H.s 1 .oo 3.24 -

14.63 IO. 14 2.61 1.93 1.74 1.35 1.25 - 1.58 -

1.74 1.67

0.95 0.89 0.60 0.61 1.94 1.86 7.99 8.25 1.39 1.50 0.97 1.07 0.58 0.59 0.60 0.59 1.34 I.40 0.11 0.13

1.0x

100.00 100.00 85.37 89.86 59.22 57.50 22.40 -

100.00 92.01 56.66 12.95

2x.17 - 3.53 -

0.71 1 .so*

30.71 5.07

0.63

1982

Unit:%

1983 1984 .~.__

100.00 100.00 91.75 91.75 58.65 59.20 12.89 12.17 32.05 32.83 5.27 5.29 8.4-l 8.91

14.37 14.54 9.22 9.04 4.61 4,lO

0.62 1.73 8.28 1 .s2 I.14 0.64 0.47 1.38 0.12

0.51 0.45

100.00 91.93 57.97 11.28 32.35 5.43

15.53 9.06 4.40

1.04 0.60 1.66 8.07 1.39 1.12 0.79 0.45 1.35 0.13

0.39

Figures are from China Statistics Yearbook, 198445: 1987 figures from Li Chengrui’s article ‘*Reforms Wave Improved the Living Standards of the Chinese People” published in the 11 July 1985 issue of World Economic Report.

facilities, amenities and infrastructure will accompany the economic productivity taking place.

In the urban areas there has also been considerable enhancement of income from those engaging in new enterprise development and production as well as provision of services and those self-employed. There is available a substantial pool of household and family savings that can be attracted to investment in housing. This is the case in Shanghai where there is effective and pressing market demand for whatever housing is put up for sale. Another indicator is the keen demand for purchase of available bond issues from banks and enterprises.

In other urban places, under the prevailing low rent policies the situation will vary as to household interest in assuming any form of home ownership, especially if this means increased monthly payments. Whatever savings may accumulate they may prefer to deposit in the banks and obtain interest. About 123.3 million urban inhabitants (72.5% of urban population) have already been or will be allotted public housing of very low rent. For the most part these are workers and staff members and their dependents of government departments, institutions and state-owned enterprises. In consequence, their wage levels and incomes remain relatively restricted. Their vested interests are to support the present system, and their views are not likely to change unless convinced that it is really in their long-term benefit to opt for a form of tenure that offers advantages and may permit some degree of capital accumulation.

In contrast, about one third of the urban population still suffers from the housing shortage. They include self-employed persons, workers of enterprises who develop little profits, employees of small organisations, the newly-married and the young who have few years of service and must wait for years to achieve any priority status for housing allocation. It is for this group that a special opportunity arises, to develop innovative forms of organisation, financing, construction and management. This will help break the stranglehold of the

WAB 11:4-F,

64 Eric Carlson

present system on the national and local economies. Moreover, it will help open the doors to a greater participation by households in the housing and community development processes at various levels. This may help lower costs and foster social awareness and responsibility and provide for greater urban satisfaction.

Such new approaches can be developed within the framework of large projects, such as those for urban renewal for sizeable areas of Shanghai. However, the emphasis should be on the development and implementation of small scale projects and building improvement efforts tending to involve a variety of planning, design and construction modalities. They would help make for more diversity in the urban environment and produce more interesting and attractive communities. New forms of management and maintenance by the people themselves could be introduced. Such areas could also incorporate different forms of tenure, including straight rental, and forms of home ownership, co-operative, condominium and mutual associations.

New concepts could help to facilitate a gradual shift in the prime role of government with respect to housing and community development. Govern- ment’s main responsibility could be directed more to providing land and infrastructure and community services so as to facilitate actual building construction by different enterprises, and encouraging the sale of housing units. This would enable government to withdraw from the heavy responsibility for the increasing subsidisation which occurs today for the bulk of the housing stock under rental tenure.

One step in this process is the establishment of a type of open-membership co- operative housing organisation, which could work closely with local government bodies, but develop new systems of financing, construction and management. It might be called a Co-operative Community Development Enterprise. to operate under the supervision of the Real Estate Management Bureaux. much as the China Enterprise Corporation and the Housing Development Corporations are doing at the present time. But it would have a different mission. of providing people with an alternative to the present situation where their main hope for housing accommodation is through their work unit.

As envisaged. in the large cities such Co-operative Community Development Enterprises would operate in the form of “mother societies” or technical service organisations. Citizens could register for membership in these organisations, and begin systematised savings plans if they wish to plan for future housing accommodation. Such savings would provide the down payments for longer-term loans for housing acquisition. The mother societies would assist in the organisation of “daughter” societies for project development in specific districts. These projects could take different forms and provide degrees of tenure and participation depending upon the constituencies to be served in each place. In some cases, there would be provision for private incremental self-building by households in accordance with their income possibilites.

Some projects would have a predominance of tenure in “home ownership”, while others with more of a common bond, such as workers in a particular industry or profession, would have more of a co-operative form for ownership and management. The degree and modalities for conferring ownership rights, including those for sale and transfer, could well vary from place to place, and from city to province. The underlying land would, of course, remain in public ownership. The central mother societies or technical service organisations could establish guidelines, procedures and regulations for application in their daughter societies and in specific projects. Their technical capabilities could be developed either through in-house staff or by contracting with consultants, and in engaging services for planning, design, architectural, engineering and landscaping, etc., as well as for contracting for building, construction. management and maintenance.

A main source of long-term funding for a new system would be the specialised


State Banks, particularly the China Bank for Industry and Commerce and the People’s Construction Bank. This means that each project must show economic viability, with cost recovery and for repayment of the loans on a long-term basis as well as for allowances for depreciation, taxation, management, maintenance, reserves, etc. Presumably, with appropriate direction and stimulus, the Banks could liberalise their lending terms for such projects and serve as instruments for the beginnings of a full mortgage system. Rather than requiring 50% down- payments on loans for housing, they might adopt other typically standard mortgage terms, such as 20% down-payments with loans that could extend for lo-20 years or more. There will also be need for small-scale credit for incremental building, especially for families who are engaged in self-help construction or improving their own dwellings. Such lending could be arranged through co-operative credit societies in arrangement with the central co- operative organisation, or upon individual application to the Banks for personal loans.

A specialised State Bank to be known as a Central National Housing and Mortgage Bank could well be established to serve in the development of a new housing finance system. This would involve the authorisation of deposit-taking entities for encouraging savings for investment in housing finance, the creation of standardised documents and procedures for housing and mortgage loans, including those for loan application, appraisal, loan approval and forms of disbursement.

A Central National Housing and Mortgage Bank would be subject to the supervision of the People’s Bank, as are the other five or six State Banks. It would have regional offices, and work with and through existing financial institutions. It would have authorisation to issue bonds based on projects and mortgage obligations. It would endeavour to secure investment funds from institutions such as insurance companies and pension and welfare and social security resources. It would have a major role in promoting investment in housing and related facilities, and in promoting specialised savings plans to facilitate loans for home ownership.

IV. HOUSING AND COMMUNITY DEVELOPMENT

There are high costs to the state for maintaining the present system of public housing at low rentals. Much of the housing stock is subject to deterioration because of its age, poor construction standards, and inadequate maintenance. Related infrastructure may be increasingly obsolescent also. One study shows that although average monthly rents in urban areas are about 0.13 Yuan/sq. m, if realistically computed to cover the real costs, the rent should be 2 Yuan/sq. m. Obviously, rent increases are required, but they should be in the context of a broader rental reform with longer term objectives including greater equity in the allocation and priority for housing and space made available. Also, it seems clear that sharp rental increases under present conditions must await basic wage and salary increases and adjustments. The proposals for timing and stepping up of rents are obviously important political determinations.

They should also be made in another context, specially the growing needs for new investment resources for construction of housing and related infrastructure, and for programmes of urban renewal and redevelopment. The basic proposition here is that, first, maintenance of the existing housing stock, much of which is in deterioration, is expensive and any savings that can be made by giving away or selling dwellings to existing tenants is a net gain. Authorities in Shanghai, for example, are said to be actively considering the possibility of giving away housing stock to existing tenants.

66 Eric Carlson

There is much world-wide experience with the privatisation or selling of public housing units, under varying terms and conditions. In recent years, in the United Kingdom and in Ireland, many council housing estates have been sold, some under ingenious arrangements to lighten and improve conditions of home ownership. In the USA, there has been some experience with the conversion or sale of public housing projects to co-operatives and for ownership on a condominium basis. In Cuba, the new housing law of 1984 created a standard tenure form for the whole country, home ownership, and converted leaseholders in government owned housing into home-owners. Many households amortise the price of their dwellings with their regular monthly payments. The total purchase is calculated by taking the monthly rent and multiplying it over a 20-year period. Payments from past years are credited toward the total, but a minimum number of years must still be paid, depending on the time of construction.

In some cases, there may be arrangements for a several tier structure of tenure. In New York City, for example, a current project built privately involves 12,000 tenants who live in 3,800 apartments. These apartments are covered by the City’s rent stabilisation law, which means that low rents are in effect. Now, existing tenants are being offered the option of continuing to rent under present low-rent controlled conditions or of buying their apartments at favourable prices. The project in the future will be managed as a co-operative housing association, but the tenants will retain full rights to resell their apartments, once they have been purchased, at full market price.

In the present situation in China, if rent increases are to be imposed, the modalities for this should be well-considered. One option may be to offer all dwelling units for sale to existing occupants on favourable terms and after proper valuation. Existing occupants may choose to remain in rental status, but they will be given to understand that rent increases will be applied so as to help the state recover its recurrent costs for maintenance and other expenses. This will help the state in generating resources for others who are in desperate conditions of housing need, living in overcrowded and service conditions, or for newly- married couples and the young for whom the present offers little hope for housing accommodation.

If they opt to accept a form of home ownership tenure, existing occupants in rental housing projects will have more incentive to improve. modernise and upgrade their apartments, and perhaps in some cases, with permission, to build on to them, as in terrace houses or on rooftops, to plant small gardens, and to become more motivated for community betterment efforts generally. They will feel they have a stake in their neighbourhood environments. Home ownership will also confer a stability of tenure and of economic costs in a period when China is undergoing increasing inflation in its thrust for modernisation and production. Rents are likely to be raised on a periodic basis, but this will not be the case for the home owners whose economic status through ownership will enjoy noticeable improvement.

There are many other aspects of the relationships between housing and community development which could be commented upon, but that will remain for the scope of another report, one that should be based on surveys and appraisals of urban situations in different regions of China.

The financing. development and management of housing and urban development in China is inexorably leading to the need for professional and representational services, consulting skills, and perhaps the beginnings of establishment of concepts, standards and training in a number of fields. With the value and pricing of land being increasingly recognised, skills in such professional areas as real estate appraisal, valuation and management will be required, forming a block of concepts and techniques underlying the understand- ing of urban economics. A China Construction Industry Association (CClA) was


established in the Fall of 1986, which perhaps could take interest in some of the important observations and recommendations of HUD delegation member Vincent Abramo. Reportedly there are now more than 10,000 consulting firms in China and there are over 11.7 milion private or self-employed business ventures. This indicates that there is a great potential for the expansion of private consulting and business related to housing, construction and urban development. Since 1985, in 35 cities there have now been held more than 100 “House Swapping” or “House Exchange Fairs” through which some 360,000 families are said to have benefited. This could represent the beginning of establishment of a real estate service industry.

China has the oldest and largest system of cities of any society in the world. It has had extensive experience with urban administration, a diversity of regional development, and exceptional integration of city and hinterland. The world has much to learn from this experience. But now China is embarked on an expressway toward modernisation and economic growth. It must provide itself with new strategies and new instruments for dealing with the financing, planning and management of human settlements so that the Chinese people will have good housing in decent urban environments appropriate for their present and future needs.

china achieves record housing

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