chapter  8
Transition to homeownership: Implications for wealth redistribution
BySI-MING LI
Pages 18

The twenty-plus years of urban housing reform has leftmarked imprints onChina’s urban sociospatial mosaic. In particular, the housing stock, which used to comprise essentially public rental housing, has now been more or less fully commoditized. Moreover, China has joined the rank of Great Britain, the United States and other advanced market economies to become a nation of homeowners. Accompanying the transition to homeownership have been massive housing construction programs, including the building of upmarket gated communities (Huang 2005), and large-scale out-migration of population to the suburbs (Li and Siu 2001). The rather dull and monotonous landscape that characterized the urban built environment in the Mao era has long given way to a vibrant and variegated scene. This chapter examines in detail the ownership transformation in urban China, trying to identify the major gainers and losers in different phases of the reform. I argue that the structure of inequalities in the socialist period has in fact strengthened under market transition in conjunction with the sale of reform housing and subsequent conferment of full ownership rights to the buyers. Housing is more than consumption good. It is also an asset. To most home

owners, the home is their single most important asset. Equally important, home purchase financed by mortgage loan is a form of leveraged investment, yet with reasonably low risk.As such, aside from its being a status symbol, homeownership also serves as ameans of saving and investment aswell as a hedge against inflation. Furthermore, the cost of housing consumption is not tenure-neutral. In China as well as inmore developedmarket economies, the state has been actively promoting homeownership by offering taxation concessions and other policy incentives to homeowners. Thus, associated with the wholesale switch to homeownership are immense redistributions of wealth across different segments of the population. Unlike the former Soviet Bloc countries which had adopted a “big bang”

approach in transition to a market economy, China has preferred a more gradualist approach in its reform (Zhu 1999). While in the case of the housing reform, the objectives have been those of privatization and marketization from the very beginning, different stages of the reformwere characterized by different emphases. Individuals and households responded to and were affected by the reform in different ways over different periods. The past few years have witnessed a surge of interest in the study of housing tenure in urban China. Recent works include,

among others, Huang (2004), Huang and Clark (2002), Li (2000a), Li and Li (2006), and Li andYi (2007). Building upon these works, the present chapter aims to answer the following questions. What kinds of measures were introduced in different periods to promote homeownership? Under what circumstances were such measures introduced, and how effective were they? Who were able to undertake the ownership switch and benefit from the policy changes? Who were left behind in the massive housing tenure transformation? The switch to homeownership is not unique to China. Similar changes have

taken place in advanced market economies as well as other former socialist countries. Below an overview of ownership transformation in different countries is provided, situating the Chinese case in a cross-country perspective. Then the reasons why owner occupation is generally the preferred mode are highlighted. Next the ownership transformation in urban China is examined in greater detail, in an attempt to identify the major gainers and losers in different phases of the reform. Data from three large-scale household surveys, two of which were conducted in 2001 in the cities of Beijing and Guangzhou, and the third in Guangzhou at the end of 2005, are employed to elicit the tenure switch trends in post-reform urbanChina.

Living in a home of one’s own is often considered an intrinsic human value (Bramley and Morgan 1998). Homeownership has variously been labeled the “American dream” (Rossi 1980), the “Australian dream” (Bourassa et al. 1995), and part of a long tradition of English individualism (Saunders 1990). In these countries, owning a home is considered the ultimate aim of the householder (Kendig 1990). The postwar period witnessed rapidly rising homeownership. In the United States, the ownership rate jumped from 45 percent in 1940 to over 60 percent in 1960; thereafter it continued to exhibit a rising trend (Clark and Dieleman 1996: 5). In Great Britain, public rental housing under the name of council housing used to be of major importance. Yet the ownership rate nevertheless rose sharply from about 30 percent in 1950 to 65 percent in 1986 (Saunders 1990: 14). The “right-to-buy” policy of the Thatcher government in the early 1980s, under which sitting tenants of council housing were offered discounts of up to 60 percent to buy their own residences, encouraged the switch to homeownership. But the sharp rise in the ownership rate was observable long before such a policy was introduced. In continental Europe, the public-rented sector has dominated the urban hous-

ing provision scene for many years. Nonetheless, rising ownership trends are also evident in Germany, the Netherlands and France, although renting public housing is still preferred by younger households (Clark and Dieleman 1996). In southern Europe, homeownership is even more prevalent than is in English-speaking countries. The ownership rate tops 80 percent in Greece, Italy and Spain (Stephens 2002). State provision of subsidized rental housing constituted an integral part of the socialist planned economy. It accounted for 67 percent of the total housing stock in the Russia Federation and 60 percent in Estonia in 1988. Within the

former socialist countries, Bulgaria and Hungary were the only countries where the state was not actively involved in housing production andmanagement (Struyk 1996: 8). Yet soon after the collapse of the communist regimes in the late 1980s and early 1990s, most former Soviet Bloc countries sought to privatize the public housing stock in the quickest manner possible, resulting in a sudden shift towards private ownership. In the Russian Federation, up to 11 million public housing units (36 percent of the state housing stock) were sold at heavily discounted prices between 1988 and 1994. In Estonia and Bulgaria, virtually all public housing units were sold over the same period (Struyk 1996: 24). Today, public rental housing in most former Soviet Bloc countries has virtually disappeared. In a number of these countries, the homeownership rate has reached 90 percent (Yasui 2002). In China, the so-called ontological preference for homeownership (Saunders

1990) is perhaps no less strong than in Britain or the United States. Yet under the People’s Republic such preference for owning homes and other landed property had to give way to the socialist ideology, which called for state ownership of all means of production. The early 1950s witnessed effective confiscation of all private rental housing. However, owner occupiers from the presocialist era were allowed to continue to dwell in their former residences, provided that the dwellings concerned were relatively small in size (Huang and Clark 2002). Aside from the small and dwindling private-owned sector, the socialist state, mainly through state work units, monopolized the production and allocation of housing in urban areas. Public rental housing dominated the housing provision scene. China’s reform began at the end of 1978. In the initial years the focus was on

the agricultural sector, but, in 1985, the Chinese reformers shifted their attention to the urban industrial sector. In the same year China conducted a housing census which provided valuable information on the structure of housing provision under socialism and the early reform period. According to this source, municipal housing bureaus controlled 11.5 percent of all floor areas in cities, state work units owned and managed 70.4 percent, and urban collectives owned and managed 10.3 percent. In other words, almost 90 percent of the urban housing stock was public rental housing of various types. Private ownership accounted for just 10.3 percent (Li 1995: 332). The 1985 Housing Census has never been repeated, but the 2000 Population

Census did provide nationwide information on housing tenure. At the end of 2000, public rental housing comprised only 16.3 percent of the housing stock in cities. The private rental sector, which was eliminated in the early days of the People’s Republic, resurfaced. But its relative importance was small, comprising only 6.9 percent of the stock. Various forms of homeownership accounted for 72.0 percent. Thebreakdownof the latter is as follows: ownership throughpurchase of former public rental housing, variously known as reform housing, 29.4 percent; self-built housing, usually located in small cities and suburban areas, 26.8 percent; commodity housing purchased in the openmarket, 9.2 percent; and “economic and comfortable housing,” which was built with tax and land premium concessions and sold at a discount, 6.5 percent (NBSC 2003: 1866). Clearly, the structure of housing provision in urban China as revealed by the 2000 Population Census

was very different from that in 1985. In particular, China has been transformed to a nation of homeowners.