China's market-oriented housing reform has relieved housing shortages and overcrowding that were problems under the old system, but inequality has grown in the process. While the nouveau riche who have done well from market reforms buy luxury villas, low-income families find themselves shut out of the property market.

In 2006, the average per-capita disposable income for Beijing residents was 19,978 yuan, while the average housing price in the city, including suburban areas, soared to 8,792 yuan per square meter, a rise of 16.7 percent on the precious year. That means an average three-person single-child household in Beijing would pay 13-years of their income to buy a 90-square-meter apartment.

At the end of 2006, 152,000 Beijing residents, whose per-capita monthly income stood below 310 yuan, were receiving subsistence allowance from the municipal government. For this group of people, purchasing housing of their own is really only a dream.

A similar situation affects cities across China. The skyrocketing cost of education, medical care and housing have been identified as the three major causes of growing public discontent in recent years, threatening the government's efforts to build a harmonious society.

High-level concern

Delivering his work report to the annual session of the National People's Congress (NPC), China's parliament, in March, Premier Wen Jiabao said the government would pay particular attention to addressing the housing problems of low-income families. "We will increase fiscal and tax-policy support and set up a sound system of low-rent housing," he told the meeting.

At a press conference during the NPC session, Minister of Finance Jin Renqing said, "I believe providing housing for low-income people falls into the arena of treasury responsibilities and Central Government has urged local governments to allocate part of their revenue from land leasing fees to real estate developers for the construction of low-rent housing." Urban land is state-owned in China and real estate developers can only buy a 70-year land lease term for residential use.

The booming real estate market in China has spurred the cost of leasing land, and in many areas local governments have become increasingly reliant on this revenue. According to statistics from the Ministry of Land and Resources, the total revenue from land leasing in 2004 reached 589.4 billion yuan, which accounted for 47 percent of local government total revenue. In 2006, land leasing revenue rocketed to a staggering 767.7 billion yuan while, according to statistics from the Ministry of Construction, in the same year the total subsidy for low-rent housing schemes nationwide was merely 2.34 billion yuan.

A factor behind local governments' reluctance to build low-rent housing is that expanded supplies of cheap housing for rent or for purchase could check the boom of local housing markets, causing a slump in land lease revenues. "When the supply of low-rent housing rises by 5 percent, the housing price will drop 3 to 4 percent," according to economist Wu Jinglian.

In November 2003, five central government departments jointly delivered a regulation to guarantee low-rent housing for urban low-income families. The regulation required every local government to allocate money to low-rent housing plans, but it proved largely unsuccessful. According to official statistics, by the end of 2006, only 53,000 apartments had been built under the scheme in 512 cities, a meager 104 per city.

Subsidized housing in the western city of Xi'an hit the headlines in March. The only low-rent complex in the city had been half-empty since its completion in 2001, despite the fact that the quality and location of the buildings were excellent and the facilities were brand new. The explanation from Xi'an's government department in charge of low-rent housing management was that the complex had only 264 apartments while there were 12,000 qualified families, which made the distribution of apartments too difficult.

The shortage of capital for low cost housing is now being tackled by Central Government. In July last year the Ministry of Finance, the Ministry of Construction and the Ministry of Land and Resources jointly issued a circular requiring every city government to allocate at least 5 percent of their revenue from land leasing to low-rent housing schemes. "The new policy will raise 10 billion yuan for a new low-rent housing fund, which equals the total input for the cause over the last eight to 10 years," said Minister of Construction Wang Guangtao. He also said by the end of 2007 a low-rent housing scheme should be established by every city and county government and in time every urban low-income family will be covered by a subsidized housing program according to their needs.