Over the past few years, China’s leaders have vowed to improve housing affordability by significantly boosting housing construction. In 2010, the Government vowed to build 36 million affordable homes by 2015 – a centrepiece of its strategy to cool the market and maintain social stability. It is a massive target, and even if only half of the planned homes are built, it would still equate to roughly half of all new dwellings constructed in China in the five years to 2015.
Unfortunately, the plan is shaping up as a potentially massive failure in policy. As reported in the Financial Times, instead of curbing property values, the scheme instead appears to have become a hotbed of corruption, with malinvestment seemingly the order of the day:
In August the national audit office estimated the scale of the rot. It said that Rmb5.8bn of funds for affordable housing had been embezzled or misdirected last year and that 110,000 homes had been obtained unfairly with false documents…
Even when prices are reasonable and corrupt officials are kept away from them, affordable housing developments have run into another stumbling block: many are in the back of beyond, where land is much cheaper. “If the housing is good, it gets allocated to officials and friends. If it’s bad, it’s so remote and very few people apply for it,” says Mr Du of Credit Suisse.
Caijing, a leading Chinese magazine, surveyed affordable housing developments across the country in August and found that many were about 20 per cent empty. Several were more than half unoccupied. Bad locations and poor transportation links were cited as the main reasons.
Indeed, on the face of it at least, it seems China might have followed Ireland’s failed planning approach, which resulted in the building of large numbers of standardised, small, poor quality homes in satellite locations far away from the major cities.
Areas in China with the highest vacancy rates appear to be the most liberal in adding new supply, whereas those areas with the lowest vacancy rates are far more restrictive.
The end result, therefore, could see the worst of both worlds for China, since new ‘affordable housing’ will likely be built where they are permitted, rather than where demand is. Meanwhile quantity controls in the more desirable areas will still likely see prices driven up.
And in the event that China’s housing market does eventually bust, the end result is more likely to be a raft of empty estates of unwanted housing, just as occured in Ireland.
