Guest Post: China's Urban Dream Denied

Tyler Durden's picture

Submitted by Youqin Huang via The Diplomat,

China is in the midst of an urban revolution, with hundreds of millions of migrants moving into cities every year.  Since 2011, for the first time in history, more than half of China’s 1.3 billion citizens (690 million people) are living in cities.  Another 300-400 million are expected to be added to China's cities in the next 15-20 years.  New Premier Li Keqiang recently proposed accelerating urbanization in China, and said urbanization is a “huge engine” of China’s future economic growth. With its unprecedented speed and scale, Nobel laureate Joseph Stiglitz has called urbanization in China one of the two main forces (the other being technological development in the U.S.) shaping the world in the 21st century.

Yet, China’s urban dream may be derailed by the lack of affordable housing in cities for the massive influx of urban residents.  

For almost five decades, Chinese cities were dominated by welfare-oriented public rental housing provided by either the government or public employers.  Severe housing shortages, residential crowding, and poor housing conditions were common problems in cities.  Over the last two decades, Chinese cities have experienced an unprecedented housing privatization, as the Chinese government has sold public rental housing at subsidized prices, encouraged developers to provide new private housing, and ended public housing provisions.

With the influx of both domestic and international investment, there has been an unprecedented housing boom in Chinese cities.  In the decade leading up to 2010, according to the Economist Intelligence Unit, China constructed roughly twice the total number of houses currently in the UK, or about the same amount of houses in Japan.

These new houses were also much larger and of a higher quality than the ones they replaced; residential floor space per capita in cities increased from 43 in 1980 to 340 square foot in 2010, although this is still much smaller than in the United States (700 square foot per person).  75% of households in cities/towns(85% of all households nationwide) were homeowners in 2010, compared to 20% in the 1980s. This rate of homeownership is higher than in many developed countries.

Meanwhile, housing prices have skyrocketed in cities, with the national average housing price increasing by 250% in the decade between 2000 and 2010.  The housing price-income ratio classifies much of China as“severely unaffordable” in terms of housing. In big cities like Beijing and Shanghai, a modest apartment can cost multiple millions of yuan to purchase, and thousands of yuan to rent, making housing affordability the top concern of most low- and middle- income households.

As a result, millions of migrants have been completely left out of the “Chinese dream,” with few owning homes in cities and most living in extremely crowded, poor quality dwellings.  Migrants are generally more vulnerable in the housing market due to their lower incomes and the discriminatory Household Registration System, or hukou system (often called an internal passport system), under which migrants are not considered “legal” residents in cities despite living and working in there over the long-term.  Without local urban hukou, migrants are not entitled to welfare benefits such as subsidized housing. Even in Shenzhen, the city of migrants, local hukou is required to access low-income housing.  In others cities like Beijing, several years of local hukou is required before applying for low-income housing.

Without government subsidies, even just renting a decent apartment in the formal market is beyond most migrants’ means. As a result, most migrants are forced to find temporary housing such as factory dorms and basements, and illegal housing built by suburban villagers, forming so-called “migrant enclaves.” With collectively owned land, suburban villagers are entitled to build housing for self-occupation; yet they often build extra housing illegally and rent these out as an extra source of income.

Because these “migrant enclaves” are technically illegal, and therefore could be demolished by the government at any time, they are often of extremely poor quality and built with the sole aim of maximizing the amount of occupants they can house.  Thus, migrants are forced to live in slum-like settlements at the fringe of urban society.

In addition to traditional poor migrants from the countryside, even educated migrants cannot afford housing in cities and have to live in these migrant enclaves.  For example, the tens of thousands of occupants of Tangjialing, a migrant enclave in Beijing, are recent college graduates who cannot afford housing in the city, and therefore live in cramped, boxy rooms and spend hours commuting to work each day. As a result, these white collar migrants are often referred to as the “ant tribe” (yi zu).

As these migrant enclaves are often located at the urban fringe far away from urban centers, many migrants also live in tiny rooms in bomb shelters and basements under apartment and commercial buildings that were designed for parking or storage.  Indeed, an estimated one to two million people, predominately migrants, live in basements in Beijing alone, forming an underground city.  They are referred to as the “mouse tribe” (shuzhu).

Yet, with rapid urbanization/urban renewal and the government’s pursuit of modernity, even this limited affordable housing for migrants is under threat, with migrant enclaves being demolished/redeveloped and basements being evacuated.  An unprecedented challenge facing the Chinese government is finding a way to shelter migrants currently in Chinese cities and as well as those who will arrive in the coming years.

So far the government’s efforts have been lacking. Despite the appalling housing conditions in many Chinese cities, it wasn’t until 2006 that the State Council formally recognized the need to improve migrants’ housing condition.  Even then, however, the central government just demanded that employers provide their migrant employees with housing, still leaving the government free of responsibility.  In 2010, the Ministry of Housing and Urban Rural Development (MOHURD) suggested that the latest rent-control housing – Public Rental Housing (gong zu fang) — may be accessed by qualified migrants.  Yet, strict qualifications make it accessible only to a very small proportion of skilled migrants, leaving the majority of migrants in the same boat as before.

The lack of affordable housing is also a problem for low-income households with local urban hukou.  Faced with increasing discontent and potential social instability, the central government has renewed its commitment to low-income housing in the last few years, pumping billions of yuan into low-income housing development and setting ambitious targets for low-income housing. For example, the government plans to add 36 million units of new affordable housing during 2011-2015.  While it is yet to be seen whether China can achieve this goal, migrants are not even the target population of this new low-income housing program.   Any low-income housing policy leaving out such a large segment of the poor as migrants defies the ultimate purpose of low-income housing policy – social justice, and thus is a failed one.

So long as one-third of urban residents are migrants without legal resident rights, urbanization in China will remain “incomplete.” If urbanization is going to succeed, the Chinese government must make affordable housing for migrants a top priority.

Achieving this will require providing enough affordable housing to accommodate the growing urban population, ending the institutionalized discrimination policies against migrants, and assimilating them into the low-income housing system.

In addition to providing some low-income housing at least to the poorest migrants, the government should actively mobilize the private sector to massively provide affordable housing.  Right now, the formal rental housing market is very much underdeveloped in Chinese cities.  With high profit margin in the owned sector and uncertainty in the housing market, developers have focused on upscale private housing.  The very limited rental housing by developers is often high-end apartments for the elite.  The government needs to provide incentives such as tax breaks, low-interest loans, and cheaper land to encourage developers to provide more affordable rental housing for the urban poor and migrants.

In addition, the government should fully recognize suburban villagers’ land rights, and encourage and facilitate them to invest in decent affordable housing.   With the dual land system in China, only local municipal governments can convert rural land into urban land for urban development.  This monopolized rural-urban land conversion by the local government needs to be abolished, and the collectively owned land in suburban villages should be allowed to enter the land and housing market directly to reap the benefits of urbanization.  With massive profits from their land tenure, suburban villagers will be motivated to invest heavily in decent housing and neighborhood infrastructure, which not only massively increase the stock of affordable housing, but also drastically improve housing conditions in migrant enclaves.

Only with a large stock of decent, affordable housing in both the public and private sector, millions of migrants can achieve their housing dream in cities, and China’s urban dream may be realized.   After benefiting from cheap migrant labor for decades, it is time for the government to shoulder at least some housing responsibility for migrants.  Otherwise, a huge population without access to decent affordable housing will derail the government’s push for further urbanization and cause sociopolitical instability.