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English>>China Business

Right to housing: Who can grant it?

By Fulong Wu  (China Daily)

08:18, October 23, 2012

"Housing for people" is an ancient Chinese utopia. In modern times, this idea has become the "right to housing". However, it does not mean that everyone should become a homeowner. Rather it means granting people access to decent housing as a basic right. During the Industrial Revolution, the working class didn't have the right to housing. The same is true of the poor living in the slums of developing countries.

But who can provide the right to housing? In the post-war era, it was the welfare state. However, despite the large-scale construction of public housing, the mission failed. In many developing countries, incapable governments facilitated the spread of slums, in which self-help and informal housing became the norm rather than the exception. Either too much or too little state intervention can be a problem.

For rapidly urbanizing China, the housing question has become a major challenge. In the past decade, rising housing prices seriously undermined affordability. Moreover, a large number of rural migrants are still drifting outside the housing market.

The root of this problem is the "business model" of developing China's economy into a "world factory". Such a business model relies on the entrepreneurial local governments to use cheaper land to attract investment. The arrival of capital led to the influx of migrant laborers into cities, with industrial development stimulating local economies and increasing the demand for real estate. Through compulsory purchase, Chinese cities generate huge revenues from transfer of land-use rights. Hence, cities have become "growth machines", and consequently they are built for capital not for people.

Such state entrepreneurship model has been really effective in capital accumulation. The Chinese economy experienced fast growth in the last decade. Until recently, speculative investment flowed into China on expectations of renminbi appreciation. In addition, the switching of capital from industry to property development by domestic enterprises because of the lucrative return from real estate has further aggravated the frenetic property market.

In this regard, China's property boom shares some similarity with the Japanese bubble in the early 1990s. But the underlying dynamics are more complicated than simple currency appreciation and speculative diversion of investment from the stock market and manufacturing for exports. It is driven by the above mentioned business model and related governance approaches.

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