Housing Reform and Housing Affordability in China A
Housing Reform and Housing Affordability in China: A Case Study of Shanghai Jie Chen Ph. D (Uppsala), Associate Professor School of Management, Fudan University & Institution for Housing and Urban Research, Uppsala University, Sweden China Urban Land Housing in the 21 st Century, HK Dec. 2007
The Contents u. Housing reform in China 1978 -2006: the transition path u. Housing market development in Shanghai 1993 -2006 u. Assessing the housing affordability situation in Shanghai 1995 -2006 China Urban Land Housing in the 21 st Century, HK Dec. 2007 2
Contributions u. Background materials u. A systemic analysis of housing affordability in urban China u. Methodology contribution: New approaches of measuring housing affordability: Ø dynamic price-to-income ratio; Ø dynamic residual income approach China Urban Land Housing in the 21 st Century, HK Dec. 2007 3
The rise of the question u The issue of housing affordability in China must be understood in the historical background u Before the 1978 reform, residential housing was a welfare good that distributed by the authority, no problem of affording, but just chance to be allocated and time of waiting u Only after the housing becomes a commodity good, the housing affordability issue arises. u The transformation of housing finance system has played a critical role in this process. China Urban Land Housing in the 21 st Century, HK Dec. 2007 4
The welfare housing allocation and old housing finance system u. Under the welfare housing system, government produced and allocated housings. u. Virtually all housing investments were solely financed by the state budgetary funding. u. The single-channel state budgetary funding housing finance system could not be sustained. u. Due to the continued financial deficit, investment on urban residential housing was consistently low. u. Housing storage was extremely serious in big cities like Shanghai. China Urban Land Housing in the 21 st Century, HK Dec. 2007 5
Housing Reform in China Three phases of China housing reform after 1978: l 1) 1980 -1988, rent increase; l 2) 1989 -1998, the selling of public housing (at discounted rate), the design of housing subsidies, infant developments of new housing finance system including the housing provident fund; l 3) 1998 -now, the complete demolition of welfare housing system and the formation of a free-wheeling, market-driven housing sector. China Urban Land Housing in the 21 st Century, HK Dec. 2007 6
The Restructuring of Housing Finance System in China (1) u Housing Provident Fund (HPF): participating employees contribute a certain proportion of their salaries to their HPF accounts and employers contribute an equal amount. The compulsory minimum contribution rate in Shanghai is 7%. The savings at HPF can only for housing-related purposes. u The functions of HPF: HPF initially was designed to finance housing production now it mainly issues personal home mortgage at a preferential interest rate. u Problems with HPF: there may be an economic redistribution from the low- to high-income households. China Urban Land Housing in 7 the 21 st Century, HK Dec. 2007
The Restructuring of Housing Finance System in China (2) l The Home Mortgage Market in China: the total outstanding value of home mortgage had a 43 -folds growth between 1996 and 2005. The share of home mortgage in the total financial loans increased from 0. 49% in 1998 to 8. 9% at the end of 2005. l The Home Mortgage Market in Shanghai: the importance of home mortgage is higher in Shanghai than any other cities in China: in 2005, the newly-added home mortgage loans accounted for 45. 6% of all newly-added long-term RMB loans and the outstanding value of home mortgage loans accounted for 15. 8% of total financial loans. China Urban Land Housing in the 21 st Century, HK Dec. 2007 8
An overview of Shanghai residential housing industry ► ► ► Before the 1978 reform, investment on residential housing was little. The consequence: the living space floor per capita in 1952 was 3. 4 sqm; in 1978, 4. 5 sqm, Between 1978 -1998, housing development was much lagged behind the economic growth. The 1998 reform lifted the welfare housing system. But the market slumped into stagnancy between 1999 and 1999. The Shanghai government had tried hard to stimulate the home demand. Since 2001, the housing market begins soaring. The house prices in Shanghai kept rising with continuously double-digit rises between 2002 and May of 2005. The market has been cooled down since May of 2005. However, strong rebound since this summer China Urban Land Housing in the 21 st Century, HK Dec. 2007 9
This year (2007. 1. 1 - 2007. 11. 8) ¡ Sale: ¡ 133, 010 units of first-hand residential property (implying 13, 058, 400 square meters) have been sold ¡ Available on the market: ¡ First-hand: 26, 878 units (2. 44 million sqm) ¡ Second-hand: 72, 062 units (8. 59 million sqm) China Urban Land Housing in the 21 st Century, HK Dec. 2007 10
Housing Investment and Housing Conditions in Shanghai 1952 -2006 China Urban Land Housing in the 21 st Century, HK Dec. 2007 11
The General Trend in the Shanghai Real Estate Market China Urban Land Housing in the 21 st Century, HK Dec. 2007 12
The market of first-hand commodity residential housings in Shanghai, 1995 -2006 Year Growth rate (%) Total value sold Growth Unit Price (100 million rate (%) (RMB/m 2) RMB) 132. 83 2477 Growth rate (%) 1995 Total construction space sold (10, 000 m 2) 536. 31 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 528. 56 617. 02 1056. 77 1243. 33 1445. 87 1681. 48 1846. 38 2224. 47 3233. 74 2845. 69 3025. 40 -1. 4 16. 7 71. 3 17. 7 16. 3 9. 8 20. 5 45. 4 -12. 0 6. 3 156. 90 178. 35 319. 76 385. 64 480. 97 615. 17 739. 89 1109. 86 2064. 74 1906. 05 2177. 08 19. 8 -2. 6 4. 7 2. 5 7. 2 10. 0 14. 8 18. 8 28. 0 4. 9 5. 1 18. 1 13. 7 79. 3 20. 6 24. 7 27. 9 20. 3 50. 0 86. 0 -7. 7 14. 2 China Urban Land Housing in the 21 st Century, HK Dec. 2007 2968 2891 3026 3102 3326 3659 4200 4989 6385 6698 7038 13
The sale structure of commodity housing 1992 -1996 Year Total floor size of sold commodity residential housings (10000 ㎡) Sold to individuals (10000 ㎡) Sold to working units (10000 ㎡) The share of individual buyers(%) 1992 55. 89 8. 15 47. 74 14. 6 1993 144. 98 36. 01 108. 97 24. 8 1994 133. 44 67. 2 66. 24 50. 4 1995 507. 65 172. 6 335. 05 34. 0 1996 528. 56 244. 83 283. 73 46. 3 China Urban Land Housing in the 21 st Century, HK Dec. 2007 14
Commodity and total housing investment 1995 -2006 China Urban Land Housing in the 21 st Century, HK Dec. 2007 15
Housing supply in Shanghai 1995 -2006 China Urban Land Housing in the 21 st Century, HK Dec. 2007 16
Why Shanghai housing price rises so fast? As a consumption commodity u. The market is new: new is more expensive than old; 1998 -2005, the total new supply is 17. 484 million sqm, roughly 1. 6 million new apartments, implying 0. 2 million new apartments every year, 4% of total (5 million local) households; rich people got them first. u. Solid increase in income; real growth of per capita disposable income, 147% between 1993 -2005; 70% between 1997 -2005; optimistic expectation of future income growth. u. Strong demand for housing improvement: the depressed demand for housing of old generation before the 1998 reform and the compensated demand released when marketization. China Urban Land Housing in the 21 st Century, HK Dec. 2007 17
Note: Disposable income per capita in Shanghai 2004 -2005, by income category Year 2004: bottom 20%, 7065; 20%-40%, 10664; 40%-60%, 14149; 60%-80%, 19371; Top 20%, 34404; Year 2005: bottom 20%, 7851; 20%-40%, 11800; 40%-60%, 15668; 60%-80%, 21313; Top 20%, 37722. China Urban Land Housing in the 21 st Century, HK Dec. 2007 18
Why housing price rises so fast? As a consumption commodity (conti. ) u Urban redevelopment: on average 80000 households per year were forced to move away but compensated by mobility fund (cf. Table 2) u Urbanization and migration u Culture factors: a home of own is a symbol of social status; family supports the only one child with all resources; …… u Institutional factors: social security and welfare u Quality improvement: the need to decompose the rise due to quality improvement and the rise due to demand increase---hedonic method (Chen, 2005) China Urban Land Housing in the 21 st Century, HK Dec. 2007 19
Completed Demolition and Resettlement Status in Shanghai(2000~2004) Year No. of Households of Completed Demolition and Resettlement Gross Floor Area (10, 000㎡) 2000 68293 288. 35 2001 71909 386. 66 2002 98714 485. 00 2003 79077 475. 47 2004 41552 232. 52 China Urban Land Housing in the 21 st Century, HK Dec. 2007 20
Why housing price rises so fast? ---As an investment commodity u. Lacking investment channels for the new riches u. The lack of investment channel and the bearish stock market u. The development of home mortgage market u. Excess Liquidity? u. Record-low interest rate, 6% for long-term loan; although eight-times interest rate adjustment in 2007 China Urban Land Housing in the 21 st Century, HK Dec. 2007 21
0 China Urban Land Housing in the 21 st Century, HK Dec. 2007 2006/01/25 2005/07/29 2005/01/31 2004/07/30 2004/01/30 2003/07/31 2003/01/29 2002/07/31 2002/01/31 2001/07/31 2001/01/19 2000/07/31 2000/01/28 1999/07/30 1999/01/29 1998/07/31 1998/01/23 1997/07/31 1997/01/31 1996/07/31 1996/01/31 1995/07/31 1995/01/27 1994/07/29 1994/01/31 1993/07/30 1993/01/29 The bearish stock market Figure 7: the Shanghai Stock Index 1993 -2006 2500 2000 1500 1000 500 22
The Role of Home Mortgage ¡ Before 1999, nearly no home mortgage loans can be applied in China; the only way to finance the home purchase was cash and savings. n Now home mortgage loan is widely regarded as the bestquality asset by all commercial banks l In 2005, in Shanghai, the newly-added home mortgage loans accounted for 45. 6% of all newly-added long-term RMB loans; and the outstanding value of home mortgage loans accounted for 15. 8% of total financial loans, in contrast to only 1. 34% in 1999. n In the third quarterly of 2007, the share of housing mortgage in total new banking loans was 75% in Shanghai! China Urban Land Housing in the 21 st Century, HK Dec. 2007 23
The Growth of Home Mortgage Market in Shanghai 1999 -2006 China Urban Land Housing in the 21 st Century, HK Dec. 2007 24
Housing finance in Shanghai Figure 8:The savings and housing mortgage in Shanghai Unit: 100 million 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 2001 2002 Total savings 2003 Consumption loan 2004 2005 housing mortgage China Urban Land Housing in the 21 st Century, HK Dec. 2007 25
Home mortgage market in Shanghai, 1995 -2006 Year 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Total Mortgage Household Financial Interest Savings Loans Rate (%) (unit: 100 million RMB) 1396. 13 1868. 34 2109. 18 2372. 94 2597. 12 2524. 05 3001. 89 4915. 54 6054. 60 6960. 99 8432. 49 9480. 28 3235 3780 4325 4870 5415 5960 7188 9074 11182 14972. 01 16789. 12 18603. 92 Growth of CPI (Consumer Price Index ) (%) 14. 76% 15. 12% 12. 42% 10. 35% 5. 58% 5. 04% 5. 51% 5. 85% China Urban Land Housing in the 21 st Century, HK Dec. 2007 8. 7 9. 2 2. 8 0. 0 1. 5 2. 5 0. 0 0. 5 0. 1 2. 2 1. 0 1. 2 Mortgage Share of Loan Mortgage in (unit: 100 total loans million RMB) (%) / / 72. 37 343. 93 650. 00 1086. 71 1709. 13 2455. 53 2644. 94 2483. 73 / / 1. 34 5. 77 9. 04 11. 98 15. 28 16. 40 15. 75 13. 35 26
Why property price rises so fast? ---As an investment commodity (continued) u. Very strong demand from outside of Shanghai ¡ nouveau riche from all other parts of China ¡ overseas hot-money investors rushing in ¡ speculation on RMB appreciation ¡ ……. China Urban Land Housing in the 21 st Century, HK Dec. 2007 27
Pre-sale Registration of Commodity Buildings in Shanghai(1997~2003) Year Targets of Pre- Outside Shanghai Overseas sale is domestic (Number of suite) Ratio of Outside Shanghai and Overseas(%) 1997 42956 1862 62 4. 29 1998 76278 1737 35 2. 27 1999 90977 5221 36 5. 46 2000 107686 9355 52 8. 03 2001 125657 24617 / 16. 38* 2002 174870 39348 / 18. 37* 2003 174279 46090 8644 23. 90 Notes:The ratio of Outside Shanghai and Overseas in 2001 and 2002 excludes the number of pre-sale registration of overseas sales commodity buildings. China Urban Land Housing in the 21 st Century, HK Dec. 2007 28
Completed Residential Buildings for Overseas Sales in Shanghai by the end of 1999 Name of Project Price (US$/㎡) Price (RMB Yuan/ ㎡) Jiulong Garden 1269 10504. 79 Aidu Apartment 1100 9105. 80 Honwell Garden 2300 19039. 40 Walton Plaza (Phase 1) 2450 20281. 10 Ouyang Building 918 7599. 21 Sassoon Park 1700 14072. 60 Roman Garden 2000 16556. 00 Source:Shanghai Real Estate Market,1999,Table 34,P 68 Notes: 1 US dollar= 8. 278 RMB, 1999 China Urban Land Housing in the 21 st Century, HK Dec. 2007 29
Inelastic supply ¡ Land us regulations in mega cities like Shanghai become increasing strict ¡ Revenues from land auctions are important in the fiscal incomes of local governments. ¡ Property developers intentionally slow down the speed of building and selling to bolster the prices China Urban Land Housing in the 21 st Century, HK Dec. 2007 30
Inelastic response of housing supply China Urban Land Housing in the 21 st Century, HK Dec. 2007 31
Assessing Housing Affordability in Shanghai China Urban Land Housing in the 21 st Century, HK Dec. 2007 32
The concept and methodology of housing affordability u The meaning of “housing affordability” still remains virtually unclear u The popular price-to-income ratio or its alternative forms: logical weakness u The residual income approach: cares whether the income after housing expenditures falls below the level of shelter poverty or housinginduced poverty. China Urban Land Housing in the 21 st Century, HK Dec. 2007 33
Applying the static price-to-income ratio u Shanghai households’ income and expenditure structure (cf. Table 5): high-income is 5 times of low-income u The Ratio of House Price to Income (in 2004): ü Take the average sale price 6, 385 RMB/sqm and floor size of 90 sqm, a typical housing costs 574, 650 RMB ü Times of Low-income total family disposable income: lowest 20%, 25; lowest 20 -40%: 18; 40 -60% income: 13; 60 -80% income: 10; highest 20%: 6; Average: 11. ü Large disparity in home buying capability ü Nearly 60% no chance to borrow a mortgage ü Worsening trend in the home affordability for the mass populace since 1999, but not for top rich China Urban Land Housing in the 21 st Century, HK Dec. 2007 34
The static price-to-income ratio indicator in Shanghai, 1995 -2006, by income category Mean Year Bottom 10% 1995 1996 1997 1998 1999 2000 2001 2002 2003 9. 99 10. 73 10. 01 10. 05 8. 29 8. 40 8. 52 9. 84 10. 10 2004 2005 2006 11. 33 10. 74 10. 15 10 -20% 20 -40% 40 -60% 60 -80% 80 -90% Top 10% 21. 32 16. 20 13. 73 11. 26 9. 28 7. 415. 39 22. 36 17. 40 14. 71 11. 90 9. 68 8. 045. 73 21. 26 16. 15 13. 39 10. 92 8. 98 7. 335. 45 21. 88 16. 14 13. 47 11. 16 9. 08 7. 495. 52 15. 72 12. 96 11. 48 9. 01 7. 726. 28 3. 96 14. 84 13. 76 10. 88 9. 29 7. 646. 29 4. 33 16. 50 14. 06 12. 60 10. 04 7. 796. 23 3. 75 20. 21 16. 86 14. 12 11. 06 9. 12 7. 474. 28 24. 02 19. 16 15. 99 11. 72 9. 30 7. 064. 34 Bottom 20% 20 -40% 40 -60% 60 -80% Top 20% 24. 80 24. 45 22. 77 17. 90 16. 59 15. 66 13. 32 12. 91 12. 80 China Urban Land Housing in the 21 st Century, HK Dec. 2007 9. 895. 84 9. 56 9. 09 5. 53 5. 08 35
M/I, Monthly mortgage payment of a standard housing as share of monthly disposable income, 1995 -2006, by income category Mean Year 1995 1996 1997 1998 1999 2000 2001 2002 2003 Bottom 10 -20% 20 -40% 40 -60% 60 -80% 80 -90% Top 10% 1. 21 2. 58 1. 96 1. 66 1. 36 1. 12 0. 90 0. 65 1. 33 2. 77 2. 16 1. 82 1. 47 1. 20 1. 00 0. 71 1. 04 2. 21 1. 68 1. 39 1. 14 0. 93 0. 76 0. 57 0. 90 1. 96 1. 45 1. 21 1. 00 0. 81 0. 67 0. 49 0. 93 0. 77 0. 68 0. 54 0. 46 0. 37 0. 24 0. 50 0. 88 0. 82 0. 65 0. 55 0. 45 0. 37 0. 26 0. 51 0. 98 0. 84 0. 75 0. 60 0. 46 0. 37 0. 22 0. 55 1. 14 0. 95 0. 80 0. 62 0. 51 0. 42 0. 24 0. 57 1. 35 1. 08 0. 90 0. 66 0. 52 0. 40 0. 24 Bottom 20% 20 -40% 40 -60% 60 -80% Top 20% 2004 2005 2006 0. 64 0. 63 0. 62 1. 40 1. 44 1. 38 1. 01 0. 98 0. 95 0. 76 0. 78 0. 56 0. 55 0. 33 0. 31 Note: mortgage terms: 25 -year maturity period, 20% downpayment, and the interest rate is kept constant at the level of the borrowing year. China Urban Land Housing in the 21 st Century, HK Dec. 2007 36
Housing affordability and supply mismatch u Very few small-sized new residential housings in the Shanghai housing market. u In 2003, for the whole city, less than 8% new dwellings sold were with the construction floor space less than 90 sqm. u New housings are larger than most EU countries The size distribution of new residential dwelling sold in Shanghai (2003, construction space, sqm) Location below 90 -110 90 m 2 2 m All city 7. 38 110 - 130150 m 2 13 15 abov 0 0 e m 2 20. 42 22. 58 24. 58 23. 16 Inner circle 13. 82 10. 17 21. 33 19. 99 34. 69 Inner-outer 6. 39 circle 23. 29 24. 7 Outer-circle 4. 94 22. 66 20. 61 27. 51 24. 29 China Urban Land Housing in the 21 st Century, HK Dec. 2007 24. 36 21. 26 37
Sizes of Housings in EU China Urban Land Housing in the 21 st Century, HK Dec. 2007 38
The dynamic price-to-income ratio u Between 1995 and 2005, the mean housing price in Shanghai increased 270%. u But the real disposable income per capita during same period increased 214%, roughly matchable. u However, the income disparity between different groups is widening. u Recalculate the price-to-income ratio by simulating households bought homes at earlier years and their incomes keep growing. u The housing costs are fixed but income grows. The affordability will improve as the economy improves. China Urban Land Housing in the 21 st Century, HK Dec. 2007 39
Note: Disposable income per capita in Shanghai 2004 -2005, by income category Year 2004: bottom 20%, 7065; 20%-40%, 10664; 40%-60%, 14149; 60%-80%, 19371; Top 20%, 34404; Year 2005: bottom 20%, 7851; 20%-40%, 11800; 40%-60%, 15668; 60%-80%, 21313; Top 20%, 37722. China Urban Land Housing in the 21 st Century, HK Dec. 2007 40
The price-to-income ratios dynamically simulated for households bought home in 1995 Year Mean Bottom 10% 10 -20% 20 -40% 40 -60% 60 -80% 1995 1996 1997 1998 1999 2000 2001 2002 2003 9. 99 8. 90 8. 58 8. 22 6. 62 6. 26 5. 77 5. 80 5. 01 21. 32 18. 55 18. 21 17. 91 12. 56 11. 05 11. 17 11. 92 Bottom 20% 9. 62 9. 04 8. 01 11. 26 9. 87 9. 36 9. 14 7. 19 6. 92 6. 80 6. 52 5. 82 40 -60% 5. 17 4. 77 4. 51 9. 28 8. 03 7. 69 7. 43 6. 17 5. 69 5. 27 5. 38 4. 62 60 -80% 3. 84 3. 53 3. 20 2004 4. 40 2005 3. 97 2006 3. 57 16. 20 14. 44 13. 84 13. 21 10. 35 10. 25 9. 52 9. 94 9. 51 13. 73 12. 20 11. 48 11. 02 9. 16 8. 11 8. 53 8. 33 7. 94 20 -40% 6. 95 6. 13 5. 51 China Urban Land Housing in the 21 st Century, HK Dec. 2007 80 -90% Top 10% 7. 41 5. 39 6. 67 4. 75 6. 28 4. 67 6. 13 4. 52 5. 02 3. 16 4. 68 3. 22 4. 22 2. 54 4. 40 2. 53 3. 50 2. 15 Top 20% 2. 27 2. 04 1. 79 41
(M/I) Monthly mortgage payment as share of monthly disposable income, dynamically simulated for households bought homes in 1999 Year Mean Bottom 10% 10 -20% 20 -40% 40 -60% 60 -80% 80 -90% Top 10% 1999 0. 49 0. 93 0. 77 0. 68 0. 54 0. 46 0. 37 0. 24 2000 0. 47 0. 82 0. 76 0. 60 0. 51 0. 42 0. 35 0. 24 2001 0. 43 0. 83 0. 71 0. 63 0. 51 0. 39 0. 31 0. 19 2002 0. 43 0. 89 0. 74 0. 62 0. 49 0. 40 0. 33 0. 19 2003 0. 37 0. 89 0. 71 Bottom 20% 0. 59 0. 43 0. 34 0. 26 0. 16 20 -40% 40 -60% 60 -80% Top 20% 2004 0. 33 0. 72 0. 52 0. 38 0. 29 0. 17 2005 0. 30 0. 67 0. 46 0. 36 0. 26 0. 15 2006 0. 27 0. 60 0. 41 0. 34 0. 24 0. 13 Note: The mortgage is assumed for 80% value of a mean-priced home, 25 -year maturity period and the interest rate is kept constant at 5. 58%, the level in 1999. China Urban Land Housing in the 21 st Century, HK Dec. 2007 42
The price-to-income ratio approach: for homes bought at 2002 Year Mean 2002 2003 9. 84 8. 50 2004 2005 7. 45 6. 76 Bottom 10% 1020% 20. 21 16. 86 20. 22 16. 13 Bottom 20% 16. 31 20 -40%40 -60%60 -80%80 Top 10% 90% 14. 12 11. 06 9. 12 7. 47 4. 28 13. 46 9. 87 7. 83 5. 94 3. 65 Top 20% 11. 78 8. 76 6. 50 3. 84 Monthly mortgage payment as share of monthly disposable income, for homes bought at 2002 2003 0. 63 0. 55 1. 30 1. 08 1. 04 0. 91 0. 86 0. 71 0. 63 0. 59 0. 50 Bottom 20% 2004 2005 0. 48 0. 43 1. 05 0. 48 0. 38 0. 27 0. 23 Top 20% 0. 76 0. 56 China Urban Land Housing in the 21 st Century, HK Dec. 2007 0. 42 0. 25 43
The residual-income approach u. Measuring whether the money remained after deducting the standard housing expenditures is sufficient to satisfy basic living needs u. When the after-housing residual income could not satisfy basic needs, this is defined as housing -induced poverty. u. The housing-induced poverty line is defined from the non-shelter consumption expenditure of the bottom 20% income group in each year. China Urban Land Housing in the 21 st Century, HK Dec. 2007 44
Income and Expenditure Structure of Shanghai Households in 2004 Average Low Income Househ olds Lower Middle Income Households Upper Middle Income Households High. Income Households Household size 3. 04 3. 28 3. 01 3. 05 3. 00 2. 86 Total annual family disposable income (RMB) 50716 23173 32099 43154 58113 98395 Annual disposable income per capita 16683 7065 10664 14149 19371 34404 #Income From Wages 11422 4804 7511 10078 15220 30257 Property Income 215 49 72 193 240 560 Renting 1057 860 801 3929 Ratio of renting (% ) 5. 71 0 0 5. 54 3. 72 10. 2 Actual Expenditures per capita (RMB) 20272 7671 10563 17287 21517 47526 #Expenditures on Purchasing and Building Houses 4651 98 137 3394 4140 16808 Share in total(%) 22. 94 1. 28 1. 3 19. 63 19. 24 35. 37 Living Expenditure 12631 6684 8814 11646 13753 23629 #Residence directly related 1327 719 812 1405 1262 2580 Share in living exp(%) 10. 51 10. 76 9. 21 12. 06 9. 18 10. 92 Item China Urban Land Housing in the 21 st Century, HK Dec. 2007 45
Housing expenditures as share of consumption expenditures (%) in Shanghai, 2000 -2005 Year Mean Bottom 10% 10 -20% 20 -40% 40 -60% 60 -80% 80 -90% Top 10% 2000 Share 1 Share 2 5. 18 8. 73 6. 76 11. 52 6. 23 10. 35 5. 71 9. 70 5. 30 7. 42 4. 67 8. 00 4. 55 7. 89 4. 38 8. 97 2001 Share 1 5. 43 6. 86 6. 20 5. 90 5. 12 4. 74 4. 06 Share 2 7. 85 8. 39 8. 56 8. 05 7. 64 6. 53 7. 03 9. 75 2002 Share 1 Share 2 5. 29 11. 36 6. 46 8. 86 5. 90 11. 49 5. 84 12. 00 5. 73 10. 76 5. 13 8. 95 4. 95 9. 85 3. 91 16. 23 2003 Share 1 Share 2 4. 92 11. 59 6. 49 10. 04 6. 64 10. 57 5. 81 9. 70 5. 07 8. 40 4. 70 13. 11 4. 59 13. 30 3. 73 10. 44 Bottom 20% 2004 2005 Share 1 Share 2 20 -40% 40 -60% 60 -80% Top 20% 5. 39 10. 51 6. 70 10. 76 6. 49 9. 21 5. 59 12. 06 5. 42 9. 18 4. 41 10. 92 5. 31 10. 25 6. 46 6. 39 10. 94 6. 10 8. 28 5. 19 10. 94 4. 17 11. 68 10. 01 Note: share 1 = maintenance /consumption expenditures; share 2 = Living/consumption expenditures. China Urban Land Housing in the 21 st Century, HK Dec. 2007 46
Housing-induced poverty line u Name MNSB (monthly minimum acceptable non-shelter consumption budget) as the housing-induced poverty line. u MNSB is defined from the monthly non-shelter consumption expenditure of the bottom 20% income group in each year. For years before 2004, it is averaged of those of bottom 10% and bottom 10 -20% group. u To determine the standardized shelter costs, we compute the mortgage payment for a 25 -year loan of 80% value of a meanpriced housing at construction space size of 90 m 2. u The monthly shelter cost is the combination of the monthly mortgage payment and monthly housing maintenance costs. u Housing-related maintenance charges are using average values of each year. China Urban Land Housing in the 21 st Century, HK Dec. 2007 47
Monthly standard shelter costs and MNSB (minimum acceptable non-shelter consumption) budget in Shanghai, 2000 -2006: unit RMB, for 25 -year (80%) mortgage of a mean-priced housing sized at 90 m 2. Standard Maintenance, Standard Mortgage, C(3) Shelter MNSB C(2) cost =C(2)+C(3) 2000 1482 107 1589 1334 2001 1630 127 1757 1585 2002 1775 139 1914 1653 2003 2108 136 2244 1471 2004 2698 170 2868 1491 2005 2964 183 3147 1700 2006 3206 185 3391 1821 Note: assume household size = 3, mortgage interest rate is set at the borrowing year China Urban Land Housing in the 21 st Century, HK Dec. 2007 48
Housing-induced poverty incidences in Shanghai, 2000 -2006 Year Mean 2000 46 2001 (121) Bottom 10 -20% 20 -40% 40 -60% 60 -80% 80 -90% Top 10% (1241) (1109) (630) (237) 344 1044 2841 (1679) (1391) (1164) (609) 180 1061 3980 2002 (364) 2003 (10) (2008) (1698) (1336) (717) (113) 652 3785 (2156) (1762) Bottom 20% (1375) (522) 308 1587 4916 20 -40% 40 -60% 60 -80% Top 20% 2004 (133) 2005 (170) (2428) (1685) (763) 483 3840 (2792) (1818) (956) 411 4238 2006 (11) (2894) (1842) (1088) 594 5187 The numbers are what the after-shelter incomes -MNSB. If negative, as those numbers with parentheses, the households are falling in housing-induced poverty. China Urban Land Housing in the 21 st Century, HK Dec. 2007 49
Maximum affordable housing costs in Shanghai 2000 -2005 Year Mean Bottom 10% 2000 1635 348 10 -20% 20 -40% 40 -60% 60 -80% 80 -90% Top 10% 480 958 1351 1932 2633 4430 2001 1636 78 366 593 1148 1937 2818 5737 2002 1549 (94) 216 578 1196 1800 2566 5699 2003 2234 88 482 869 1722 2552 3830 7159 2004 2735 Bottom 20% 440 20 -40% 40 -60% 60 -80% 1184 2105 3352 Top 20% 6708 2005 2977 355 1329 2191 3557 7385 Maximum affordable housing cost, the which level below a household will not fall in the housing-induced poverty after paying their housing costs. China Urban Land Housing in the 21 st Century, HK Dec. 2007 50
Further Studies Needed u Housing purchase power crisis ≠housing affordability crisis; u Peculiarly, home price growth is largely uncorrelated with rents in Shanghai u Rental housing affordable by most (but barely for low-income) u Most Shanghai residents actually own their homes free and clear, obtained at discounted prices when the massive transfer of public housings in late 1990 s u The most urgent pressure is placed on the young people and inter-city migrating people China Urban Land Housing in the 21 st Century, HK Dec. 2007 51
The homeowner-ship ratio in urban China and Shanghai Data source: Gallup survey data (2005) China Urban Land Housing in the 21 st Century, HK Dec. 2007 52
Housing Affordability and Housing Inequality u Old welfare housing system: no affordability issue but inequality based on occupation and political reasons u Housing reform recognized the old housing inequality u Housing market: housing affordability and new housing inequality u Housing inequality is not only the outcome but also one reason for socioeconomic inequality u Policy dilemma: should we encourage the poor to be homeowners at any cost? China Urban Land Housing in the 21 st Century, HK Dec. 2007 53
Conclusions ü The restructuring of China housing system, is basically smooth and successfully. ü But the market could not solve the problem of distribution: the benefits of reform are not distributed evenly and large disparity in the home buying capability ü Housing affordability has become an urgent urban issue, esp. for the low-income group. ü More flexible financial instruments and innovations in housing finance system are warranted. ü However, market could not be the solution to all’s housing needs. ü The government should provide different solutions to different groups. China Urban Land Housing in the 21 st Century, HK Dec. 2007 54
Thank you all! China Urban Land Housing in the 21 st Century, HK Dec. 2007 55
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