The new "housing reform" is coming! Is the Singapore model suitable for China?

Recently, the new expression of the housing system in the Guiding Opinions on the Planning and Construction of Affordable Housing (Guo Fa [2023] No. 14, hereinafter referred to as "Circular No. 14") of the State Council has attracted much public attention, and some industry insiders have interpreted it as "China will promote a new round of 'housing reform'", which has sparked heated discussions.

Diagram / Diagram Worm Creativity

In short, Circular No. 14 proposes to build allotment-type affordable housing, focusing on wage earners with housing difficulties and low incomes, talents introduced by the government, and "sandwich layers" without housing registration, and placing them in accordance with the principle of capital preservation and small profits. At the same time, the document also makes it clear that it is necessary to establish a fair and just placement mechanism, strengthen supervision and auditing, and implement strict closed management of relevant affordable housing, which shall not be listed and traded.

At present, the central government's issuance of "Document No. 14" is not only to take into account the continuous downturn in the real estate market in the past two years and the transformation of the development model of the real estate industry in the future, but also to address the mismatch between supply and demand in the real estate market, and to realize the people's desire to "live in a home". According to my analysis, this may mean that the country will start with supply-side reform and create a new housing supply system to solve the current dilemma.

The current real estate dilemma

To solve the real estate dilemma, it is necessary to have a new model, which may be the consensus reached by all parties in China, including the political, business and academic circles, and it can even be said to be the voice and expectation.

Since the end of 2021, bailing out the real estate market has been one of the themes of China's economy. But the effect of the unprecedented and intensive easing is hardly optimistic in hindsight. In 2022, the area of new construction and the sales amount of commercial housing across the country will drop by 39.4% and 26.7% respectively, and in January ~ September this year, these two indicators will decline by 23.4% and 4.6% respectively on the basis of last year's ultra-low base.

In the first three quarters, the area of new housing starts in China returned to the level of 2006, and the amount of commercial housing sales returned to the level of six years ago. You know, this is in an environment where real estate policy continues to be unprecedentedly loose and mortgage interest rates fall to the lowest level in history. Even though the policy continues to be favorable and developers are cutting prices and promotions, residents' willingness to buy houses is still sluggish, and the inventory of commercial housing is rising. According to CRIC statistics, in September, 23 of the 30 key cities in the digestion cycle of new houses for sale exceeded the 18-month warning line, and Xiamen and other cities exceeded 30 months. In addition, as of the end of August, the generalized inventory (including approved but unbuilt, under construction but not sold, and for sale) in 30 typical cities reached 5.6 years, and the hot cities reached 4.6 years.

At the same time, China's housing demand potential is still huge. In particular, there are 300 million ~ 400 million new citizens, newly employed college students, and immigrants across the country, and they have a strong sense of anxiety about owning a property right house, and whether they can take root in the city where they work and live a decent life, housing is an important part. However, after more than 20 years of rapid growth in China's real estate market, we are facing such an embarrassment: most of the people with financial strength no longer want to buy a house (or even want to sell it), and most people with insufficient savings want to buy a house but cannot afford to buy a house (or even cannot afford to rent a house).

Therefore, following the traditional model, that is, the demand side offers various incentives to encourage everyone to buy a house, and the marginal effect is significantly reduced. The crux of the problem lies in the "demand fault and mismatch between supply and demand", that is, the supply structure does not adapt to the demand structure. The new round of housing reform to create a new model is to solve this problem from the perspective of promoting supply-side reform. Among them, improving the housing security system is the proper meaning.

The prototype of a new housing security system in China

In the future, the basic logic of China's new housing security system is to expand and implement government-led housing security, including public rental housing for low-income groups with the nature of basic security, affordable rental housing for new citizens, young people, newly employed college students, etc., as well as the "No. 14" proposal for housing difficulties and low income groups of wage earners, urban needs of imported talents, household registration without housing "sandwich layer" and other groups, so that the public can enjoy decent housing, Urbanization of public services, integrated into the city to become a real citizen. The new housing security system will solve the problem of demand fault caused by insufficient effective demand, promote the virtuous cycle of the real estate industry, and build a housing consumption and asset ownership ladder of "rent before buying", "small before big", and "get on the car first and improve later".

Under the "two-wheel drive" supply pattern of affordable housing allocation and allocation, the affordable housing proposed in Circular No. 14 is a placement product, which is aimed at housing demand groups with a certain amount of income accumulation and want to obtain property rights housing, but there is a certain gap between them and the purchase of commercial housing. The first is the homeless households who have obtained household registration in the city where they are employed. The second is the "talent group" represented by newly employed college students, who have enjoyed the dividends of higher education and have relatively high expectations, but as soon as they enter the society, they are faced with unprecedented high housing prices, and they are quite anxious because they can't afford to buy a house. Finally, there are personnel from government agencies and institutions, and newly introduced talents from enterprises.

Affordable housing focuses on "home ownership", and to achieve this goal, the government needs to provide housing on a large scale. From the perspective of population size, development basis, urban-rural gap, urbanization process, legal foundation, historical path dependence, etc., China cannot refer to Singapore's housing security system, but it can learn from Singapore's housing security concept of "home ownership", increase low-cost land supply, implement mandatory central provident fund inclusive loans, and implement equal distribution of public services to help achieve this goal. The right to decent housing and basic public services also inspires the entire population to develop the idea of an individual effort to actively acquire wealth.

When the affordable housing system of the allocation type and the allocation type of affordable housing is established, the shortcomings of the affordable housing can be filled, and the commercial housing market can achieve a virtuous circle on the basis of the perfect housing security system, and the new real estate model of market + guarantee will come into being.

How to solve the problem of the implementation of "Document No. 14".

To promote the supply-side reform of the real estate industry and make the "No. 14 document" truly land, it is necessary to solve the problems of land allocation and supply, the closed circulation of affordable housing for allocation, and the bottom line of "guaranteeing the basics".

According to Circular No. 14, the biggest feature of affordable housing advocated by the government is "guaranteed capital and low-interest supply". Among them, the supply of land allocation, which will incur only a small amount of demolition costs, is key.

For the 35 urban areas with a permanent population of more than 3 million people flowing into large cities, it is not difficult to allocate land, but it is not easy to achieve effective supply. On the one hand, if these cities are allowed to allocate new land for supply, it is likely to be concentrated in the suburbs or periphery of the city, and the effective housing demand is mainly concentrated in the main urban area or sub-center; On the other hand, the current generalized inventory of commercial housing in the periphery of the city is actually relatively large (for example, the digestion cycle of Guangzhou's generalized inventory is more than 7 years), and the price of commercial housing in relevant areas has also dropped significantly in the past two years. Large-scale land supply in these areas can lead to new ineffective supply.

Circular No. 14 places special emphasis on job-housing balance and demand-based supply, i.e., in the context of major changes in the relationship between supply and demand and residents being sensitive to commuting costs, they hope to increase supply and avoid ineffective supply. Based on this, I suggest that the land supply in the central area and the sub-central area should be increased. Of course, the local government will consider the impact of land revenue on fiscal revenue, and may not take out the beautiful land in the central area, how to solve this problem?

Revitalizing the stock of land is a countermeasure worth considering. According to the statistics of the former Ministry of Land and Resources, in 2014, the proportion of urban inefficient land in China reached more than 40%, and the inefficient industrial land is estimated to be about 5,000 square kilometers. At the same time, in recent years, some real estate private enterprises have withdrawn, asset restructuring, and guaranteed delivery of buildings, etc., which will release a large amount of land. Circular No. 14 also proposes to make full use of the approved unbuilt land recovered in accordance with the law, the bankruptcy disposal of commercial housing by real estate enterprises, and land and idle housing to build and raise affordable housing. For the construction of affordable housing on non-residential land, there is also planning and land use support, such as changing land use, no need to pay the land price, and the original allocated land continues to retain the allocation method, and the city government supports and optimizes the planning indicators.

In fact, in 2021, the General Office of the State Council issued the "Opinions on Accelerating the Development of Affordable Rental Housing" (Guo Ban Fa [2021] No. 22), which also put forward a similar policy for revitalizing the stock of land, but the effect is not obvious, which is to a certain extent related to the "input-output" mismatch and difficulty in balancing the funds of affordable rental housing, and there are also problems such as land use adjustment, fire safety acceptance and other aspects that have not been opened. But more importantly, the original localities (government agencies, enterprises, schools, hospitals, etc.) are reluctant to take out the land, and even want to divide the housing for employees in the name of affordable housing. In addition, the planning and land management departments and the housing and urban-rural development departments have not cooperated enough in promoting planning adjustment and land and housing function adjustment. In the final analysis, the main responsibility of local governments in promoting affordable housing has not been effectively implemented.

The key to revitalizing the large number of allocable supply plots in the hands of party and government organs, state-owned enterprises and institutions located in the central areas of the city lies in implementing and refining the main responsibilities of local governments and consolidating the principle of state property rights and ownership by the whole people. Here, it is advisable to draw on Singapore's Land Acquisition Act, which gives the government the power to expropriate land for any public purpose, to prevent the interests of "small groups" from overriding the public interest.

In addition to land supply, it is also important to consolidate the closed circulation system for the allocation of affordable housing. The so-called closed circulation refers to the fact that affordable housing should be re-traded, which can only be repurchased or sold by the government to eligible people, and cannot be publicly listed. The aim is to eliminate rent-seeking or arbitrage, distribute housing to those who need it most, and promote the use of existing resources. After the issuance of Circular No. 14, the trend of "welfare housing" for arbitrage of affordable housing has resurged, and the past scenarios of "arbitrage" of property-based housing such as affordable housing, price-limited housing, and affordable housing are not far away, and the regulations that could not be listed (such as resettlement housing) have also been broken in some places in recent years.

Therefore, the closed circulation should be implemented consistently and to the letter, which is the key to the fact that affordable housing will not repeat the trap of "welfare" of property rights affordable housing and truly distribute it to the people in need. To this end, the document proposes to implement a national network, strengthen the supervision of the whole process of planning and construction of affordable housing, and strictly prevent the implementation of policies from being out of shape. The author believes that as long as the technical support of the network is in place, the real estate registration system clarifies the circulation rules, the violators are punished with credible punishment, and the information disclosure is unimpeded, arbitrage expectations will definitely be dispelled.

It should be emphasized that the planned and constructed affordable housing should adhere to the background of "guaranteeing the basics". The location selection of affordable housing is consistent and staggered with commercial housing, but it should be different from the relevant standards of commercial housing in terms of area standards, decoration standards, and supporting facilities, so as to prevent "welfare traps".

I think there are some lessons to be learned from Singapore's HDB construction. For example, in terms of housing area, the smallest two-room flexible HDB flat in Singapore is only 36 square meters, and the layout area of the three-room HDB flat is only 60~65 square meters. In terms of construction, the façade of HDB flats is mostly painted with high-quality and inexpensive paints, and materials such as veneer bricks are rarely used. In terms of supporting facilities, most HDB flats are built on street frontage, without community walls, and public spaces are mostly provided in the form of "ground floor overhead", "roof terraces" and "communication corridors". China's planning and construction of affordable housing should also learn from this essence, that is, adhere to the "basic protection", force back arbitrage, and stimulate the motivation of the buyers of affordable housing to continue to work hard to improve their living conditions, so as to establish the concept of gradient consumption and consolidate the foundation for the sustainable development of real estate.

(The author is the chief researcher of the Guangdong Provincial Housing Policy Research Center)

The views expressed in this article are solely those of the author

Published in the 1116th issue of China News Weekly magazine on November 13, 2023

Magazine title: This housing reform is not another housing reform, where is the new "No. 14 document"?

Author: Li Yujia

Editor: Wang Xiaoxia