Costly low-rent housing breeds dependency

Recently, many local governments have announced plans to build low-rent housing.

 In some cities, the construction costs for low-rent housing is 1,400 yuan ($215) per square meter and each apartment is 36 square meters large. The rent for each house is 400 yuan ($61) per month, which is not affordable for a really poor family, given they also have to pay for water, electricity and gas.

 So, when I see that so many people move happily into low-rent houses, I doubt if they are really poor.

 Beijing has this kind of bad experience. The low-rent houses in Huilongguan, for instance, are high-standard, decent-sized homes.

 The people living there are the ones who can get “proof” of their so-called poverty, instead of those who are truly poor. The only problem they have is that the roads of the housing estate are too narrow for their cars, since the designers did not expect that the “poor” residents there would be driving cars to work.

 One useful lesson from the US is that building commercial homes and low-rent homes close together, with shared public facilities, is a good way to avoid slums and other social problems.

 It makes low-rent housing costlier to build, however. If the government doesn’t control standards well, and it becomes another glitzy local project, it could put pressure on local finances.

Currently there is a popular theory in the real estate market about “two parallel markets,” which is that the government controls the low-rent housing that occupies 40 percent of the total market, while the market controls the remaining commercial housing. I think this theory is not practical, since the two markets cannot be separated completely.

 Purchasing commercial housing is an investment, no matter whether the house is used to live in or be rented out. If the ratio of housing price and renting price is 20:1, you should recover your investment in 20 years. Otherwise, it is better to save your money in the bank, instead of buying the house.

 Renting a house is a kind of consumption that would be counted in the consumer price index. If the housing price does not fall, rental prices will rise.

 In this situation, the government must make a tough choice over the housing it controls; should it raise rents, or provide more funds? The large-scale construction of low-renting housing puts burdens on government finances.

 It is important to control the construction costs for low-rent housing. One way is to strengthen management and crack down on kickbacks, and another way is to lower design standards.

 Low-rent housing cannot be built to excessive living standards, since these houses are subsidized by the state. Otherwise, low-rent housing will become a big burden on local finance which is not fair to the middle class who earn money to buy their own houses.

 In order to improve income distribution, we cannot only concentrate our effort on the distribution level. Allowances to the poor cannot only depend on government finance, or it becomes a black hole.

 We should learn lessons from the Western welfare states after the World War II, the traditional socialist equalitarianism and also some left-wing policies in the socialist construction of China. Redistribution of income feeds the idle, and at the same time puts pressure on government finances.

 The government should create employment opportunities for the poor, instead of relying on welfare.

 China has not got a strong enough economy to give too much welfare to the poor. Even developed countries cannot deal with the endowment insurance well. Social security has become a big problem, given the aging of the population.

 How can China give excessive welfare to the poor, given its low per-capita GDP? We should see that the construction of low-rent housing could end up just being a waste of funds, going to the wrong people and not helping even when it’s given to the truly poor.

 Only by stressing practical results and improving efficiency can maintain long-term sustainable development.

Leave a Reply