Under the reform of China's old so-called welfare-housing system, State employers sold State-owned living quarters to employees at discount prices and many Chinese have bought their homes in recent years.

Figures released by the Ministry of Construction earlier this month show that four out of five households in urban areas are owner-occupied.

But there is little room for complacency. Nationwide, 150 million square meters of old or dilapidated housing require renovation, and 1.56 million urban households do not have enough living space.

The government should play a more active role in ensuring that every household is well-housed.

Wang Lina, a senior research fellow at the Institute of Economics of the Chinese Academy of Social Sciences, said: "Although the social-welfare housing is being phased out, the government still has a responsibility -- and, in fact, has a greater responsibility -- to shelter poor families."

The State introduced a multilayered housing supply system in 1998 to meet the needs of people with different incomes. Within the framework, the lowest-income groups will be provided with low-rent houses or given rent subsidies; medium-income families have the choice of so-called economy housing sold at prices set by the government; and so-called commercial homes targeted at high-income families will be sold at market prices.

Yet in big cities such as Beijing, Guangzhou or Shanghai, an average-priced house is far beyond the reach of an average-income household.

Last year in Beijing, the average annual wage was 19,155 yuan (US$2,310), according to the Beijing Municipal Bureau of Statistics. The current average housing price in the city is 4,883 yuan (US$590) per square meter, according to figures released by the National Bureau of Statistics last week.

The scant supply of affordable housing is highlighted by the demand for flats in an apartment complex that went on sale last month for an economy price. The asking price of 3,180 yuan (US$384) per square meter was more than 30 percent lower than the nearby commercial housing. Many people camped outside and waited for three days before the complex went on sale. And the waiting list numbered more than a thousand.

The shortage of reasonably priced housing has forced many families either to devote a large portion of their income to accommodation costs or to live on the outskirts of the city where they work and commute long distances.

In some cities, there are no low-rent housing schemes. Even where such schemes exist, the number of those eligible far exceeds the number of houses available. For instance, in Beijing alone, 294,000 people live on the minimum living allowance and have a living space of less than 7 square meters per capita. But only 396 households have received the 500 yuan (US$60) monthly rent supplement from the municipal government, Xinhua News Agency reported this month.

One of the factors behind local governments' lackadaisical ineptitude in implementing the country's low-rent housing policy is the lack of incentives for them.

Developers of economy homes do not have to pay any land-transfer fee and can enjoy tax reductions and exemptions on certain items, which almost halves the fees and taxes that developers pay.

Bao Zonghua, vice-president of the China Real-Estate and Housing Research Association, pointed out: "However, in many cities, the land-transfer fee is a major source of income for local finance. Thus, some local governments procrastinate in the promotion of economy housing."

Even with a limited supply of economy housing, such affordable housing sometimes ends up in the wrong hands.

Wang Lina said: "Due to a lax assessment scale based on the applicant's annual income, many high-income families have bought these houses and some others choose it as an investment, which certainly is not what housing policy-makers had intended."

Since the cost limit on economy housing only applies to the price per square meter, developers are trying to build bigger units to attract high-income buyers.

At present, some so-called economy houses have a floor space of above 200 square meters per unit. This is too spacious for medium and low-income families to afford, and many luxurious amenities have also bolstered up prices.

Bao Zonghua suggested that a better approach would be to put a ceiling on the cost of the whole flat.

"And if strict controls on floor space, cost, and applicants are adopted, along with a clear consumer target, the promotion of economy housing will not jeopardize the development of commercial housing," added Bao.

Compared to economy housing schemes, the supply of low-rent housing requires a direct injection of public funds, which is an even more difficult task for many cash-strapped cities. This explains why only a very small proportion of the needy have moved into low-rent houses.

In the coming years, the government will have to channel more funds into such projects.

Liu Hongyu, director of the Institute of Real-Estate Research of Tsinghua University in Beijing, said: "It is necessary and pertinent to establish stable financing channels to ensure the sound and smooth implementation of the low-rent housing project."

According to Wang Lina, around 5 percent of public expenditure in some Western countries is used to support low-cost housing.

"If the amount of rent funding is established as a percentage of local finance, and institutionalized or written into law, stable funding can be ensured," she said.

To fundamentally solve the housing issue, the potential of rented property should also be fully tapped.

Wang said: "To spur diversified consumption and activate the whole property market, the government should introduce preferential policies to encourage house swaps and the sale of houses purchased from the State employer."

However, unequal socio-economic conditions mean that it is impossible for China's more than 660 cities to move at the same pace.

Liu Hongyu said: "As they have different scales and their economies are at different stages and for other historical reasons, a blanket policy model aimed at solving the issue will only backfire."

(China Daily August 21, 2002)