Pang Ming is a member of the China Chief Economist Forum, Chief Economist and Research Director of JLL Greater China, and a member of the China Chief Economist Forum
Guide
In August 2023, the State Council issued the Guiding Opinions on the Planning and Construction of Affordable Housing ("Circular No. 14"), which pointed out that "reform and innovation should be used to plan and construct affordable housing in large cities", and the status of affordable housing has been unprecedentedly enhanced. The meeting of the Political Bureau of the CPC Central Committee held on April 30, 2024 also pointed out that it is necessary to coordinate the study of policies and measures to digest the stock of real estate and optimize the incremental housing, and pay close attention to the construction of a new model of real estate development to promote the high-quality development of real estate. Based on this, this paper focuses on three aspects: enhancing the utilization of idle housing and land resources driven by the two-wheel drive of "allocation + allocation", consolidating the supply of affordable housing due to urban policies, and escorting the construction of affordable housing led by policy funds, so as to provide decision-making reference for steadily increasing financial support for the construction of affordable housing and realizing the virtuous cycle of the real estate industry and the healthy growth of the macroeconomy.
Steadily increase financial support for the construction of affordable housing
The meeting of the Political Bureau of the CPC Central Committee held on April 30, 2024 pointed out that it is necessary to combine the new changes in the supply and demand relationship of the real estate market and the new expectations of the people for high-quality housing, coordinate the study of policies and measures to digest the stock of real estate and optimize the incremental housing, and pay close attention to the construction of a new model of real estate development to promote the high-quality development of real estate. In the past period of time, the relevant state departments and a number of high-energy cities have also made many innovations in the aspects of "replacing the old with the new" and "exchanging the old with the new", "digesting the stock" by converting part of the stock of commercial housing into affordable rental housing, and adopting the dual-track model of "market + security" to "optimize the increment" and "determine the housing by people, the land by the house, and coordinate the residential land supply arrangement of 'market + security'".
01
"Allocation + placement" two-wheel drive
Enhance vacant houses
and land resource utilization
With the development of economy and society, the shape, structure and characteristics of China's real estate market are constantly evolving. Although the government has actively regulated and regulated the housing market at different stages, it has proposed policies such as "public rental housing" and "low-rent housing" to ensure the housing needs of ordinary people, especially low-income people; However, in practice, compared with the large-scale inflow of population brought about by urbanization, especially in high-tier cities, the supply of affordable housing is still lagging behind, and the housing demand of a large number of migrants is facing a large gap. According to the survey data of the Ministry of Housing and Urban-Rural Development, 70% of new citizens and young people in large cities rely on renting to solve their housing problems, and the supply of commercial housing is mainly in the existing housing system. As of the end of 2022, only about 5% of affordable housing such as public rental housing, affordable rental housing, and co-ownership housing accounted for about 5%, and there are obvious shortcomings in the supply of affordable housing. Against this backdrop, in order to achieve the dual goals of "living in peace" for the new urban population and stable economic development, the State Council issued the Guiding Opinions on the Planning and Construction of Affordable Housing (hereinafter referred to as "Circular No. 14") in August 2023.
In terms of rent allocation and affordable housing, in addition to the original public rental housing, low-rent housing and other security systems, "rental housing" for new citizens and young people is the focus of current efforts. During the "14th Five-Year Plan" period, the country originally planned to raise and build 8.7 million units of affordable rental housing, but with the accelerated inflow of population in some high-tier cities and the increasing attention of the central government to the construction of affordable housing, some cities have begun to dynamically adjust their own plans to moderately increase supply, such as Shenzhen increased the original plan of 540,000 units to 740,000 units, and Chengdu increased the original plan of 250,000 units to 300,000 units. By the end of 2023, according to the National Bureau of Statistics, about 5.73 million units have been built and raised across the country, completing 65.9% of the original plan during the 14th Five-Year Plan period.
In terms of placing affordable housing, Circular No. 14 establishes the capital guaranteed and low-profit placement rules of "land cost + construction cost + profit" and the operation and management mechanism of "closed management shall not be listed and traded, and idle transfer shall be repurchased by the government", mainly to solve the housing purchase needs of wage earners, scientific and technological personnel, teachers and medical personnel introduced by the city. In terms of overall scale, in view of the relatively late introduction of the concept of placement type affordable housing, the planning of this type of affordable housing in various places is still in the stage of policy exploration and pilot implementation. Up to now, according to incomplete statistics, more than 130,000 sets of placement affordable housing in key cities across the country have entered the construction period. In terms of quantity, Fuzhou plans to build the largest number of units in 2024, with 12,400 units, the four first-tier cities of Beijing, Shanghai, Guangzhou and Shenzhen and Xi'an are all around 10,000 units, and the other second- and third-tier cities are between 2,000 and 4,000 units. It is expected that each city will introduce corresponding specific plans in the future, and the proportion of the scale of placement affordable housing is expected to increase.
From the perspective of construction methods, the preparation channels for affordable housing are divided into two types: new construction and stock revitalization: new construction refers to the proportion of affordable housing that can be built with a part of the new commercial housing in the new construction land; The other preparation channels are all stock revitalization, including five ways: self-owned land of enterprises and institutions, collective management construction land, supporting land for industrial parks, non-residential stock housing, and reconstruction of stock residential housing. It is not difficult to see that the construction of affordable housing will play a significant role in revitalizing the stock of idle houses and inefficient land resources.
According to Document No. 14, it is necessary to determine the affordable land first, mainly to change the land use of the original idle and inefficient industrial, commercial and office land, and then complete the land supply through the allocation mode without paying the land premium. Allowing cities with high inventory to rebuild the stock of commercial housing into affordable housing has the effect of killing two birds with one stone: it can not only complete the supply of affordable housing, cover the needs of new citizens, but also reduce the inventory of new housing and alleviate the pressure on the current commercial housing market. In addition, after the completion of the project, the implementation of affordable housing policy incentives, such as the implementation of civil standards for water and electricity prices, VAT real estate tax reduction and other tax support.
02
According to the city's policies, the supply of affordable housing will be consolidated
With first-tier cities and Chengdu,
Chongqing as an example
(1) First-tier cities: key supply areas for affordable rental housing
Compared with the traditional affordable housing categories that appeared earlier and mainly met the housing needs of the registered population, such as low-rent housing, affordable housing, public rental housing, and co-ownership housing, the concept of affordable rental housing (hereinafter referred to as "rental housing") can be traced back to 2015. The Central Economic Work Conference held at the end of that year proposed to promote the reform of the housing system with the starting point of "satisfying the needs of new citizens" and expanding public rental housing to the non-registered population.
The 2020 Central Economic Work Conference further clearly required "attaching great importance to the construction of affordable rental housing" and taking it as an important measure to solve the outstanding housing problems in large cities. It can be said that affordable rental housing has officially become an important part of China's housing security system. In July 2021, the Opinions of the General Office of the State Council on Accelerating the Development of Affordable Rental Housing (hereinafter referred to as "Circular No. 22") pointed out that the current housing difficulties of new citizens, young people and other groups are still relatively prominent, and it is necessary to accelerate the improvement of the housing security system with public rental housing, affordable rental housing and co-ownership housing as the main body. In addition to further clarifying and improving the top-level design of the affordable housing system, Circular No. 22 also refines the standards and requirements for the specific construction of affordable rental housing. For example, affordable rental housing should be mainly small units with a construction area of less than 70 square meters, and the rent level should be lower than the rent of market-oriented rental housing of the same location and quality.
Since the original intention of the design of the affordable rental housing system is to solve the housing problem of new citizens and young people in key cities with a net inflow of population, first-tier cities with a large net inflow of population, a considerable number of new citizens and young people, and a strong demand for housing rental are naturally the key areas to meet the supply of affordable rental cities.
(2) Chengdu and Chongqing: construction and supply of multi-gradient affordable housing
Chengdu and Chongqing are the central cities of China's fourth pole of China, and also occupy two seats among the top four cities with the largest population in the country, which has important exploratory value and index significance for the construction of affordable housing in China, especially in second-tier cities. Taking Chongqing as an example, as the only municipality directly under the central government in the western region, it has always had the advantage of being the first to try policies in the real estate field. As early as the "12th Five-Year Plan" and "13th Five-Year Plan" period, Chongqing has built public rental housing on a large scale, providing valuable practical experience for the continuous optimization and reform of the national housing system. According to the data of the seventh national population census, the proportion of households renting low-rent housing and public rental housing in Chongqing reached 6.2%, 2.4 percentage points higher than the national average, and this proportion ranked third among the 31 provinces and cities, second only to Tibet and Yunnan, where the majority of ethnic minority housing projects are located. As the central and western cities with the largest inflow of foreign population in the country from 2010 to 2022, Chengdu has long been ahead of the country in the process of real estate marketization, which also plays an important role in how to balance the relationship between "market and security" in the housing system in the future.
The first principle of affordable housing construction is "people-oriented" and "people-housing matching", and the scale of affordable housing supply should be compatible with the speed of population inflow. As the central cities of the Chengdu-Chongqing urban agglomeration, the total population absorption of Chengdu and Chongqing reached 6.149 million and 3.286 million respectively from 2010 to 2022, ranking among the top in the country. The huge scale of mobile inflows has created a large demand for housing, and for "new Chengdu people" and "new Chongqing people", renting is still the preferred way to live. (See Figure 1)
By the end of 2023, Chengdu and Chongqing had raised a total of 174,000 and 264,000 units of affordable rental housing during the 14th Five-Year Plan period, completing 58.0% and 66.0% of the plans, respectively. In the long run, as a part of the urban public resource service support, affordable housing needs to coordinate the joint impact of policy design, population inflow and urban development, and dynamically adjust the relationship between top-level design and practical exploration according to time and place, so as to finally achieve the balance between urban jobs and housing. In terms of policy support, Chengdu and Chongqing give priority to the use of idle housing and inefficient land resources for the financing and construction of affordable housing, and the channels include two modes: new construction and stock revitalization: new construction means that in the new construction land, a part of the proportion of affordable housing can be built for new commercial housing; Other ways of preparation for construction are stock revitalization, including self-owned land of enterprises and institutions, collective management construction land, supporting land for industrial parks, non-residential stock housing, and reconstruction of stock residential housing. (See Figure 2)
Taking long-term rental apartment insurance as an example, in recent years, cases of long-term rental apartment operation brands being included in the affordable housing system have sprung up. Nationally, data from the ICCRA Housing Rental Industry Research Institute shows that as of the end of the second quarter of 2023, about 22.4% of the long-term rental apartments that have been opened nationwide have been included in local rental housing, with a total scale of about 192,000 units. As of the end of 2023, the top three operators, Vanke Boyu, Longfor Guanyu, and China Resources Youchao, have guaranteed 102,000, 50,000, and 25,000 long-term rental apartments respectively, which will play an important role in destocking developers. In addition, the project after the insurance will bring policy support related to affordable housing, such as the implementation of civil standards for water and electricity prices, VAT and property tax reduction, and other tax incentives, which will play a role in promoting and improving the operation of the project.
03
Government funding is dominant
A full range of financial services
Escort the construction of affordable housing
Historical data show that local finance is the main source of funds for the construction of affordable housing, and the contribution rate has been more than 95% for a long time. However, due to the livelihood attribute of "guaranteed capital and small profits" of affordable housing itself, whether it is new construction or stock renovation, large-scale construction of affordable housing still requires long-term support from a large number of low-cost funds. We believe that central policy funds and social capital will become the key to solving the problem of affordable housing construction funds in the short term, and local governments, as the main departments of construction and operation, should also use various policy tools in a timely and flexible manner to stimulate market vitality in the long run.
(1) Central policy funds
The first is the subsidy fund for the central affordable housing project as a fund in the financial plan. From 2022 to 2024, the central government will arrange 22.4 billion yuan, 24.7 billion yuan and 11.9 billion yuan respectively for rental housing security funds, of which another 14.18 billion yuan will be awarded in 2024 to subsidize the four major areas of housing security, urban village transformation, old community renovation and shantytown renovation.
The second is the refinancing of affordable housing. This is also the most important source of funds for destocking commercial housing and raising affordable housing. On May 17, 2024, the People's Bank of China announced the establishment of a 300 billion yuan affordable housing refinancing with an interest rate of 1.75%, and incorporated the 100 billion yuan rental housing loan support program launched in 2023 to be piloted in some cities, which will be fully promoted nationwide. The People's Bank of China will issue re-loans according to 60% of the loan principal, and will subsequently drive 21 national banks to lend 500 billion yuan to support the acquisition of completed and unsold commercial housing for rent or allotment of affordable housing.
The third is the collateral supplementary loan (PSL) and the special loan for affordable housing. Since the resumption of PSL in December 2023, the central bank has invested 500 billion yuan (PSL) to support the construction of affordable housing, the construction of public infrastructure for both ordinary and emergency purposes, and the transformation of urban villages. In December 2023, China Development Bank granted a credit of 202 million yuan to the Shuanglong Xinju affordable housing project in Fuzhou City, marking the successful implementation of the country's first placement affordable housing development loan. On April 24, 2024, the China Development Bank announced the first loan of 808 million yuan for the affordable housing project on Jingkou Road in Licang, Qingdao, aiming to support the construction of the first batch of 2,000 units of affordable housing for sale.
Fourth, financial support related to special treasury bonds. The National Development and Reform Commission (NDRC) said that it will issue ultra-long-term special treasury bonds for several consecutive years for the implementation of major national strategies and the "dual areas" of security capacity building in key areas, focusing on supporting the construction of scientific and technological innovation, urban-rural integrated development, regional coordinated development, food and energy security, and high-quality population development. We expect that affordable housing, as an important carrier of urban-rural integrated development, coordinated regional development and high-quality population development, is expected to receive long-term support from special treasury bond funds in the future.
(2) Local financial instruments and policy support
The first is local government special bonds. This is also the main source of funding for the construction of affordable housing in the past. According to statistics, from 2021 to 2023, the scale of funds used by local governments for affordable housing projects will be 624.5 billion yuan, 631.9 billion yuan and 470.5 billion yuan respectively. In 2024, the investment direction of special bonds will remain unchanged in the ten major areas as a whole, but two new investment directions will be added in the field of affordable housing projects: urban village renovation and affordable housing.
Second, the premium capital of land transfer by local governments can be used as incremental funds for the construction of affordable housing. From the perspective of historical experience, in order to prevent the overheating of the property market and promote the construction of affordable housing, many provinces and cities across the country, including Jiangsu, Guangdong and Shandong, have issued relevant rules to make centralized provisions for part of the premium funds in the transfer of residential and commercial land in the process of land auction, which is used for the incremental source of funds for local affordable housing.
The third is to innovate the operation model. The "rent-to-sell, rent-to-sell linkage" model of affordable housing can be adopted to improve the stability of the project's cash flow. Countries such as Singapore, Hong Kong, the United Kingdom, Australia and Canada have all introduced rent-to-own housing schemes, allowing buyers to acquire housing through leasing and have the opportunity to purchase a home after meeting the conditions. Mainland provinces and cities, including Chongqing, Shenzhen, Shanghai, Dongguan and Hubei, have also made useful explorations on such models.
(3) Social funds
Commercial banks are expected to increase their support for rental housing in the future. On January 5, 2024, the People's Bank of China and the State Administration of Financial Supervision and Administration issued the Opinions on Financial Support for the Development of the Housing Rental Market, pointing out that financial support for the development of the housing rental market should be based on market allocation, providing a diversified financial service system for the investment, development, construction and operation of rental housing, and clearly proposing favorable policies such as supporting enterprises and institutions to purchase stock of idle houses in bulk in accordance with laws and regulations for use as dormitory-type affordable rental housing.
In the future, the mainland's "market + security" two-wheel drive housing pattern will be more perfect, and the strategic importance of affordable housing construction will be further enhanced. Compared with the traditional affordable housing systems such as public rental housing and low-rent housing for low-income and needy people in the past, the future affordable housing system is expected to be more "inclusive", and the coverage of key groups such as young people and new citizens will be further expanded and strengthened. In particular, governments at all levels can supplement affordable housing by buying back unsold new houses, promoting the destocking of existing second-hand houses, revitalizing and renovating non-residential properties, acquiring idle land projects, and building and placing affordable housing, so as to open up a virtuous cycle of commercial housing and affordable housing.
We believe that under the preferential policies and guidance, we should further improve the all-round and multi-channel financial support system based on government investment and policy funds, supplemented by socialized funds under market guidance, and better increase the efficiency of capital utilization and financial support in all aspects of investment, financing and operation. In the medium and long term, we should focus on building a multi-level, multi-subject and multi-channel real estate financing system, deal with the relationship between people, land, housing and money from the source, and achieve low-end security, mid-end support, and high-end market, so as to realize the real estate development direction of "accelerating the establishment of a housing system with multi-subject supply, multi-channel security, and simultaneous rental and purchase" and "improving people's livelihood and well-being, and improving people's quality of life" proposed in the report of the 20th National Congress of the Communist Party of China, so as to achieve a virtuous cycle of the real estate industry and healthy macroeconomic growth, and promote high-quality social development.
Author's Information:
Pang Ming (Chief Economist & Head of Research, JLL Greater China)
Zhu Jianhui (Head of Research Department, West China Region, Jones Lang LaSalle)
Wan Jiadong (Senior Manager, Chongqing Research Department, Jones Lang LaSalle)
Source:
Originally published in the Financial Times (24 June 2024)