The View | How social housing could get China’s economy and population growing again

China has begun policy easing in the property sector, taking the kind of steps that are inevitable in the current economic climate. However, the impact is likely to be highest in mid-tiered cities but limited in the top- and low-tier cities.

Also, none of this policy tinkering will address the needs of the people at the base of the economic pyramid. The clampdown on runaway property prices was motivated by laudable social objectives, but the brakes might have been applied too firmly, with repercussions from local government financing to banking sector risks.

In an environment of economic uncertainty, low investment confidence, depressed personal incomes and massive youth unemployment, a cooled property market is hardly enough to promote home ownership. The nation’s property woes have raised concerns that China may be at risk of entering an era of “Japanification” – lost decades of economic stagnation.

Meanwhile, in Singapore, rents have skyrocketed with the influx of expatriates in the past few years. Yet, that has not affected social stability, as more than 80 per cent of Singapore’s population live in owner-occupied public housing.

China’s property sector is now in a quandary following the fateful choice to adopt a model of land-based financing. Given local governments’ fiscal woes, reliance on land sales income has become entrenched. In such an environment, local governments lack the resources and incentives to provide social housing.

With a series of housing reforms from 1988, China moved away from danwei – work unit – housing, towards a market-based system. Social housing was expected to make great progress, but instead private housing came to dominate the market.