At a recent conference with construction and housing officials from across the nation, Minister of Construction Wang Guangtao pushed for more construction of affordable housing to enable many medium- and low-income families to buy their own homes. His speech set the tone for the continued construction of low-cost housing in 2005.

Beijing will build three million square meters of affordable housing in 2005 and plans to add the same amount of area each year until 2010. Tianjin expects to put up 2 million square meters, and other cities are drafting similar plans.

However, a number of analysts believe that the housing problem cannot be overcome by simply erecting more apartment blocks: they have identified major problems that, if not overcome, are likely to keep home ownership beyond the reach of many low- and middle-income earners.

At present there is no clear definition of medium- and low-income families. According to regulations in Beijing, a family with an annual income less than 60,000 yuan (US$7,200) is eligible to buy a low-cost house. But the average disposable annual income of Beijing urban residents was 13,882.6 yuan (US$1,680) in 2003 and 14,331 yuan (US$1,730) in the first 11 months of. 2004. Thus, a family with annual income of 60,000 yuan should belong to a medium-upper level. Families in this category are the largest group in Beijing.

Experts from the construction ministry's strategy research center and other industry insiders suggest that the proportion of economically affordable housing should not be more than 20 percent of the whole market. From 1998 to 2003, Beijing constructed more than 15 million square meters economically affordable housing, falling far short of the needs of medium-income residents, albeit well within their price range.

But Chen Huai, head of the strategy research center, says that at present, it is the low-income group that really needs help from government: they cannot afford even the most "affordable" budget housing.

Another issue is the static nature of the affordable housing supply. An individual who has bought such a house may keep it forever, regardless of even the most dramatically changed financial situation. In fact, many currently eligible buyers are young people who have been in the work force only a short time and have saved little. But their economic conditions are likely to improve rapidly. The government does not have any conditional right to later recall the subsidized housing.

Providing affordable housing should be a social welfare function, but the proportion that actually gets to the most needy is small. Its welfare function should be realized through the government operation, which is not-for-profit. But because market forces are allowed to work, friction can easily occur between the development company, which is profit-oriented, and low-income buyers. Conflicts between the two are unavoidable.

The affordable housing concept grew out of the combination of a fledgling real estate industry, the end of the housing allocation policy, the improvement of personal income and comparatively weak consumer purchasing power. But the government cannot provide subsidized housing for an entire population: it must define and identify a specific group of beneficiaries and offer them a product that they can actually afford to accept.

(China Business Post, translated by Li Shen for China.org.cn January 18, 2005)