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China’s Housing Paradox

Housing Paradox
Since August 2021, China’s housing market has been in steep decline, which could spell disaster given that real estate constitutes almost a third of China’s economy. With Ghost Cities remaining empty across the country, a housing paradox presents itself, in which there is a huge housing surplus, yet also a large homeless population. Redefining what it means to be homeless in the context of China’s hukou system provides a way forward that could benefit both its affluent, as well as those at the bottom of the social hierarchy.

The Hukou

 The hukou is a Chinese registration system that gives citizens preferential access to jobs, health care, land and other services in their birth area. However, this scheme was put in place to curb mass migration towards cities as the country began to industrialize. By prohibiting people from jobs, schools and buying land from areas outside of the space they were assigned to under the hukou, it effectively prohibited internal migration. 

This restrictive system resulted in huge inequalities across the country as Maoist Socialism favored cities due to their economic potential, whilst rural areas were left underfunded and subjected to forcibly low grain procurement prices. Consequently, rural poverty was rampant, reaching a height of 96% in 1980. Fei-Ling Wang, political scientist and author of “Organizing Through Division and Exclusion: China’s Hukou System,” says that the hukou was essentially a caste system in which city babies were born into privilege.

Former Chairman Deng Xiaoping’s government relaxed the system in the 1980s, allowing internal migration. However, people originating from rural regions still lack many rights to formal employment, property and education for their children in cities, allowing inequality to persist. 

While China’s government estimated that just above 1% of the population was homeless in 2019, He et al. advocate expanding the definition of homeless. Rural migrants are forced by hukou restrictions to live in overcrowded and unsanitary informal settlements in cities. Alongside poverty, said settlements are very precarious as they could easily be cleared without any notice, given that migrants have no legal claim to the land. In the American Journal of Sociology and Economics, Huili He et al. expand the definition of homeless to include struggling rural migrants, so that China’s homeless population reaches 300 million, which is more than 20% of the population. Clearly, China’s government is minimizing the homelessness problem, which is better characterized as a crisis. 

The Housing Bubble

While it would be an exaggeration to say that China’s housing market is in freefall, private data shows house prices are steeply declining, with prices in tier 1 cities such as Beijing and Shanghai falling by more than 15%. This is far above government estimates.

China’s huge population created huge demand which propelled the housing market to this size. Also, due to a lack of investment alternatives, many citizens buy secondary or even tertiary homes as a form of investment. These homes are often sold after their prices have increased, or they are given to future generations of children and grandchildren. Regarding supply, Chinese local officials tend to invest in huge housing projects to reach high GDP growth targets and improve their reputation in Beijing. 

Consequently, even before the COVID-19 pandemic, supply began to far outstrip demand as China’s birth rate slowed. The country is littered with ghost cities. These are huge developments with countless towering apartment blocks that are uninhabited. One of the most famous is Ordos City, which attracted attention in 2009 for being empty. A Forbes update in 2016 noted that 100,000 people lived there, although the city was originally built for more than 1 million. 

China’s attempts to achieve ‘zero COVID’ resulted in numerous lockdowns, some lasting into 2022. This had many ramifications. Many property developers risked defaulting on their loans. Chinese properties are often sold prior to their construction and many residents had exchanged their land in return for a newly constructed apartment. However, some construction projects have ground to a halt, resulting in many residing in cramped temporary housing with little hope for a home. With a vacancy rate of over 20%, this contraction in supply has applied no upward pressure to prices.

Regarding demand, the plight of developers has severely shaken consumer confidence, resulting in many choosing to save rather than invest in real estate. The COVID-19 pandemic also diminished purchasing power and increased youth unemployment to more than 20%. Therefore, more young people live with their parents, diminishing the need for secondary and tertiary properties. Real estate demand has steeply fallen, depressing prices. 

The Paradox

China is confronted with a housing paradox. The housing market is crashing, yet more than a fifth of the Chinese population is homeless. While many efforts have focused on curbing rural-to-urban migration, ghost cities present a wiser alternative. The government should focus on ending its concentration of services and opportunities in tier 1 cities and spread them further out across the country in lower tier cities. This would attract migrants away from Beijing, Shenzhen and Shanghai towards cities that are underpopulated. It would both increase real estate demand and decrease homelessness. 

However, solving this housing paradox demands many prerequisites. First, it would require huge government planning and assistance to facilitate migration and aid those at the bottom of society to get onto the property ladder. While NGOs such as the China Foundation for Rural Development have been very successful at alleviating rural poverty through diverting tourism to these areas, much urban poverty has been ignored. Second, this solution would require abolishing, or at least significantly relaxing, the hukou. The Lowy Institute claims that this would increase housing demand and overall be a significant boost for the Chinese economy. However, relaxations to the hukou have been very slow, and its cultural significance should not be underestimated — meaning that abolishing it is a huge task. 

China’s housing paradox presents the country with a stark truth. If its economy hopes to survive, it needs to significantly reform culturally and end its highly restrictive migration policy in favor of free market labor and service movements. Whether the one-party system is willing to allow this remains to be seen. 

– Ryan Ratnam
Photo: Flickr

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China’s Hukou System Restricts Mobility

On the surface, China has been a powerhouse in diminishing global poverty. Measured by individuals living with less than $6.85 a day, China’s poverty rate decreased from 63% in 2010 to 25% in 2019. Based on the country’s official poverty line, the World Bank states that, as of 2020, China’s national poverty rate is 0%. Martin Raiser, the World Bank’s representative in China, claims that China’s work accounts for roughly 70% of the world’s absolute poverty reduction. However, the People’s Republic of China maintains ingrained inequities due to how its hukou system restricts mobility.

What is the Hukou system?

The hukou system is the administrative tool used for population management and registration. The hukou system classifies individuals into urban and rural categories, assigning certain services to each classification, such as access to hospitals and schools. This policy dictates where individuals can live, work and own land in China. This restricts population movement by reserving government services like social security and public education only to citizens with proper hukou for the area in which they live. Changing one’s hukou is often expensive and almost impossible, depending on where the individual wants to live. Due to these policies, the PRC directly shapes available opportunities for urban and rural residents, contributing to stark disparities between its civilians.

China’s hukou system controls internal migration, manages social protection and preserves social stability. By restricting the legal right to live and work in cities without proper hukou, China achieved its goal of limiting the growth of megacities. This process helped mitigate the uncontrolled growth of urban slums, but many rural residents ignored hukou restrictions in search of better economic opportunities in cities.

Hukou Controls Mobility in China

Being born in a rural area causes those Chinese citizens to lose access to the job market in prosperous cities. Thus, they are often confined to living in the same region for most of their lives. Citizens need a temporary residence permit to spend more than three days outside their city or town, preventing free mobility like in other countries such as the U.S.

Some people born with rural hukou endure a complex and costly process to change their status, but many others lack the resources to go through this legal avenue. As a result, many rural residents migrate to cities without the allowed hukou, losing access to beneficial government services and often resorting to poor housing conditions.

Larger cities often limit new hukou to wealthy households, thus, leaving poorer urban residents with worse living conditions. Smaller cities usually accept rural migrants, making it easier for them to receive their desired hukou. While this process deters migrants from moving to larger cities like Shanghai and Beijing, it also puts millions of Chinese migrants in threatening conditions.

Ingrained Inequities in the Hukou System

The hukou system exists in tandem with growing income inequality. China’s Gini coefficient reveals high-income inequality: measuring inequality on a scale from 0 (low) to 1 (high), China’s is approximately 0.47 compared to 0.41 in the U.S.

While moving to urban areas increases access to higher-paying jobs, rural-to-urban migrants face significant penalties if they do not have an urban hukou. These workers lose access to health insurance, retirement allowances, unemployment insurance, maternity benefits, work insurance, employment and education. With more than half of China’s population living in cities, only 35% of urbanites have a city hukou. This disparity means more than 250 million migrant workers do not receive social security benefits.

The hukou system disadvantages rural residents more than city-designated dwellers by limiting their opportunities. On average, a farmer’s annual income equals about one-sixth of the average salary of an urban citizen. This steep income disparity is exacerbated by how farmers pay a tax rate three times the amount urban residents pay, presenting a great challenge for upward social mobility.

The Borgen Project spoke with Lauren He, a former resident of Shanghai, about the hukou system’s inequities. He stated, “Because of my urban hukou status, I have evaded many barriers migrants face when moving to cities like Shanghai.”

“My grandparents did not grow up with the hukou system, so they were able to move to Shanghai from the countryside with fewer complications than what migrants face today. This system deeply disadvantages those who cannot get the necessary hukou,” said He.

Consumption Poverty Rates Show Inequity

Despite persisting inequity due in part to the hukou system, studies have shown that rural-to-urban migration reduces poverty. Migrant workers move to increase their salaries, with many sending money back to their families in less prosperous rural areas, expanding economic growth and lowering the risk of poverty.

However, the hukou system has widened inequities in many ways. Many migrants work jobs more susceptible to market change, indicating a higher risk of impoverishment. In addition, while migrants may have lower income poverty, they still face the challenges of high consumption poverty rates. Migrant workers with urban hukous consume up to 30% more than their counterparts without the proper hukou status, revealing a disparity linked to the hukou system.

The Future of Poverty Reduction in China

While reforms continue in the hukou system, other programs in China are working to counter poverty through more direct action. In 1989, the China Foundation for Poverty Alleviation began its mission to combat poverty by organizing projects ranging from health care and education to economic development through infrastructure construction. Headquartered in Beijing, the CFPA targets domestic and global poverty, aiding the mission to end poverty for all.

With the work of organizations like CFPA and liberalizing restrictions on hukou, change may come to help eliminate disparities between urban and rural citizens in China.

– Michael Cardamone
Photo: Flickr