Aug 01, 2017 12:04 PM

Editorial: Expanding Rental Housing Would Help Stabilize Prices, Boost China’s Economy

Authorities haven’t been able to effectively rein in surging housing prices in Beijing and several other major Chinese cities over the past few years. Now they are trying a different tack: boosting the supply of apartments for rent.

In China, more than 70% of people live in apartments they own. Government efforts to control skyrocketing property prices have often succeeded temporarily. But then prices took off again — and the demand for properties grew even stronger.

That pattern could be changing.

Nine ministerial departments — including the Ministry of Housing and Urban-Rural Development, and the National Development and Reform Commission — issued a guideline on July 18 stating that the government plans to boost rental housing in major cities that see a constant influx of migrants.

The guideline asks state-owned real estate companies to turn their inventory of apartments into rentals. It also requires major cities to establish government-run rental transaction service platforms to provide housing information and guarantee transparent and protected transactions.

The increase in rental housing is being heralded as a major move toward establishing a sustainable mechanism to control the overheated property market. Public expectations are also high.

The Chinese economy can no longer excessively rely on the property industry. After all, as President Xi Jinping has said, houses are built for living, not for speculation. The bottom line of any housing reform should be to protect the people’s right to have a place to live.

The government had been encouraging the development of subsidized housing in recent years. People could apply who met requirements, such as having relatively low income, being local residents and owning no home. But the amount of subsidized housing was far too little to meet the need.

In addition, local governments often only halfheartedly carried out restrictive policies. They often rely on selling land to developers to earn their fiscal money — higher land prices mean higher income.

The push for a larger rental market is aimed at boosting the supply of houses to lower prices. It also can address the different needs people have for housing.

The State Council published a guideline on developing the rental housing market last year. The latest document is a further step.

Metropolitan cities like Beijing and Shanghai have also been taking serious moves to increase the availability of rental housing. The Beijing government, for instance, announced on July 27 that 12,800 rental apartments at five residential compounds will be ready by the end of this year, and 500,000 new rental apartments will be built over the next five years.

However, some analysts remain skeptical that the latest government measures can cool down housing prices.

In a document in 2007, the State Council mentioned improving affordable rental housing to help lower-income families. Yet housing prices have seen several rounds of steep growth since then, in some areas jumping severalfold. People are worried whether the latest policy will suffer the same fate. Apparently, it is another test for the authorities’ sincerity and determination.

To develop rental housing, the government must also encourage private investment. Currently, government-funded affordable rental housing accounts for 80% of all such projects. Channels for public investment must be widened to invite private companies to enter this market, so as to fill in the capital shortage and diversify the rental housing supply.

The government needs to provide more land for rental housing. Preferential tax breaks are also needed for businesses. The government can provide assistance or subsidies through multiple financing tools in order to help individuals get an affordable home to live. Most of these measures can be learned from the experience of some developed countries.

China’s rental housing market is immature. Landlords often terminate rental contracts or raise rent at will. Protection of tenants needs to be enhanced. The housing authority issued a draft regulation on rental housing, which has detailed articles to protect tenants’ rights. The public is closely watching whether the regulation comes out soon and will be effectively enforced.

Protecting renters’ rights in China has huge implications. Many cities extend only to property owners important public services, such as having the right for their children to attend a nearby school. Officials with the housing authority said earlier this year that they will seek to draft laws so renters and owners have equal rights.

Such a step would be positive. But equal access to public services cannot be guaranteed by just a piece of paper. Equal rights for renters could be an empty promise if the change does not come with deeper reforms in policies applying to urban dwellers, such as medical benefits connected to residence registration.

Improving the lives of renters will require government departments to join together on issues involving financing, land, tax and investment — and back them up by laws and policies. Each step will require the will to stand up to certain groups benefiting from the status quo.

China’s economy has been heavily relying on the property market. It drives other industries, such as steel, construction materials, machinery and home appliances. But such a heavy reliance on one sector — in this case, the property market — isn’t sustainable. And the reliance brings with it huge financial and social risks.

It is a good time for these changes. The national economy has been stable in the first half of this year. Meanwhile, rental reform has been expected by the public, which will give it strong support.

The push to turn government-planned housing into a market-oriented sector has been taking place for nearly 20 years. The push has accomplished a lot despite some outstanding problems.

Authorities need to draw lessons from the past, adjust their direction and find a sustainable development model that reflects China’s special needs but also conforms to market forces.

Chinese economy needs new driving forces to get off the old path of growing through building more houses.

What happens with rental housing will have a profound effect on the future of the real estate market as well as China’s economy.

Hu Shuli is the editor-in-chief of Caixin Media.

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