Mainland poor left out in the cold despite housing promises

Mark O’neill – The South China Morning Post

Monday, August 1, 2005
Copyright The South China Morning Post
Secondary school teacher Wang Li, 35, lives with his wife in a 130sqft basement room in Beijing. Last December, he applied for low-cost housing, to which he was entitled due to his low salary and poor living conditions.
For 10 weeks, Mr Wang lived on the street next to the developer of a housing project in the hope of being first in the queue when homes went on sale. But he missed out because his number did not come up in the lottery that decided the lucky winners.
It is 12 years since the government announced the idea of low-cost urban housing for those who could not afford to buy homes in a market that for 40 years had relied on cheap apartments from work-units, but that had since gone commercial.
It would include preferential policies to support developers with cheap land so they could build low-cost apartments and sell them at a lower profit. But the programme has failed to help the millions of urban families for whom it was intended because developers have sold many of the flats to the rich and middle class.
The authorities have been unable to properly supervise the scheme and there has been a lack of legal protection.
The result is a widening gap between two classes of society – those who own homes and those who do not, a gap that is growing as property prices rise every year.
“The government at that time failed to understand the classes in society,” said Yang Shen, former vice-minister of construction and chairman of the China Property Industry Association. “It set the income conditions too broadly, with the result that many middle- and upper-income people were able to buy them.
“Of 100 urban households, 84 per cent are homeowners. This percentage is too high and homes in circulation are too few. The second-hand market is not developed, so everyone waits to buy and the prices go up. Each year, 15 million people come to live in the cities and each year the number of new homes is insufficient.”
Developers don’t like building these homes, because the profit margin is low. In Beijing, for example, where 50 per cent of households are eligible because they earn less than 60,000 yuan a year, low-cost homes accounted for 10 per cent of total housing investment last year and only 7 per cent in the first five months of this year.
Nationwide, low-cost housing accounted for 6.9 per cent of the total last year, down from 9.4 per cent in 2003, official figures show.
As in the west, home ownership has become the principle division between rich and poor, a division that has widened over the past six years as property prices have soared in major cities. In Shanghai, for example, prices have tripled since 1999.
Today the average price in Shanghai, a region which includes a large offshore island and areas two to three hours from the city centre, is 620 yuan per square foot, while the average monthly income is 1,610 yuan. That means that to buy an average apartment of 650sqft, a couple with two salaries needs to spend 10 years of their combined incomes, compared to an international standard of seven years.
The best they could afford is an apartment about one hour from the city centre. The beneficiaries of this housing boom are a new class of people who own half a dozen apartments or more and live off the rent. The losers are the unemployed, those on low incomes and migrants from outside the city who are excluded from the market.
An official survey released in June found that 10 per cent of the richest urban dwellers controlled 45 per cent of the wealth in the cities, while the poorest 10 per cent controlled just 1.4 per cent. Company managers earned an average of 20 times more than their common workers.
It said the gap between the urban rich and poor was widening. In 2003, the richest 20 per cent had 5.3 times as much disposable income as the poorest 20 per cent, up from 5.1 times the previous year.
This wealth disparity resembles that of developed countries and is the opposite of the first 30 years of communist rule.
After the communists took power, they nationalised housing and followed the Soviet model, under which urban workers received homes from their state employers and paid a peppercorn rent.
But the economics of maintaining these apartment buildings became untenable and in the mid-1990s the government ordered their sale to the tenants at below-market prices, with those who had been occupying them the longest paying the least. After 45 years, the state was withdrawing from the property sector and, like Margaret Thatcher’s Britain, turning it into a commercial market.
Because it knew some people would be unable to buy, the government in 1993 launched the concept of low-cost housing.
In 1998, the State Council formally announced the end of state-provided homes and that low-cost housing would be provided to the urban poor.
“At that time there was no clear idea of the target,” said Gu Yunchang, secretary-general of the China Property Association. “Did middle- and low-income people include people with middle incomes? It was not clearly defined. A majority of people thought that they qualified.”
The government left the programme in the hands of developers and did not set out clear guidelines for who was eligible.
As a result, many middle-income and even rich people applied for and obtained the homes, which cost more than 30 per cent less than those in the commercial market. Developers reserved a portion of the units for sale to go to the highest bidder.
At the Today Garden project in Beijing, the developer added 1.7 million square feet more to the amount set out in the building plan, which they then sold at commercial prices.
Newspapers ran stories of how their reporters found BMWs and Mercedes-Benzes parked outside the units.
Desperate to obtain an apartment, applicants began to live outside the offices of the developers, setting up tents, in order not to miss the chance.
Embarrassed, Liu Yongfu, deputy chief of the construction bureau of Beijing city, said his bureau would co-operate with tax officials to find out more about applicants’ incomes to weed out those who did not qualify. It also would do a better job of explaining the programme to the public.

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