Government-subsidized Housing to Use Public Housing Funds

Issue 480, August 2, News, Page 5
Translated by Tang Xiangyang
Original article:[Chinese]

The Ministry of Housing and Urban-Rural Development (MHURD) has finally succeeded in using public housing funds to construct government-subsidized housing.

The EO has learned that, after a ten-month wait, on July 28, Changsha City, the capital of Hunan Province has gained approval from the MHURD to become one of the 28 pilot cities that are allowed to use public housing funds to construct government-subsidized housing projects. Changsha is the first city, among the 28, to publicize its specific project.

According to the Public Fund Management Regulations revised in 2002, a public housing fund can only be used to supplement already existing capital for low-rent housing projects. But now with the support of the State Council, the 28 pilot cities may use large quantities of their housing reserve funds that have been lying idle to construct government-subsidized housing.

However, even with official approval, they actually face many legal risks.

Contradictory Laws

The MHURD co-released a notice with seven other ministries last October, which allows local governments to use 50 percent of their public housing funds to construct government-subsidized housing.

The EO has learned from the MHURD that 30 cities applied to be pilot cities, but only 28 of them gained approval.

“This pilot program is rational but not legal,” Chen Jie, Director of Fudan University’s Center for Housing Policy Studies, told an EO reporter. He participated in a seminar held by the MHURD to discuss the above possibilities of using public housing funds to construct government-subsidized housing.

According to the current Public Fund Management Regulations, public housing funds can only be used as supplementary capital for low-rent housing projects, which, as a source close to the MHURD put it, would cause difficulties for the public housing funds to get a return on their investment because it would take a long time to recover the cost of high-risk low-rent housing projects. Therefore, the Ministry decided to expand the usage of the public housing fund to include affordable housing, public housing for rent and resettlement for residents affected by urban transformation projects.

To prepare for the issuance of this policy, the MHURD has spent two years soliciting ideas and established a specialized task force. Currently they have completed early stage preparation and prepared their specific operation plans. For example, who will collect the idle funds, who will issue the loans, who will supervise and who will reclaim capital?

But the key problem is that the new policy will change the usage of public housing funds and thus involves revising the current Public Fund Management Regulations.

“The MHURD applied to revise the regulations, but was refused by the State Council,” Chen Jie said. The reason for the refusal lies in the conflict between the proposed revision and the new “Law on Government-subsidized Housing” currently being-drafted.

Though both the Law on Government-subsidized Housing and the Public Fund Management Regulations are drafted by the MHURD, the latter, as a ministerial regulation, only needs to be approved by the State Council, while the former, as a new law, has to be approved by the National People’s Congress (NPC). Though the NPC’s law committee has tried to coordinate the two, the regulation has still not been revised which is why the MHURD co-released the notice mentioned above with seven other ministries last October.

Identifying Difficulties

In fact, many aspects of the new policy go against the previous regulations.

As early as the first half of 2010, some CPPCC members had already had doubts about the regulation to use 50 percent of the deposits of public housing funds to develop government-subsidized housing. They believe that it is acceptable to use the interest from public housing funds, rather than the fund itself to construct government-subsidized housing.

Zhu Zhongyi, deputy chairman of China Real Estate Association stated that current regulations, “only mention low-cost housing, and are only aimed at the appreciated value of the public housing fund; they do not mention the public housing fund itself.”

Wang Lina, a researcher with the Chinese Academy of Social Sciences Economic Research Institute who has tracked the public housing fund system for a long time stated, “The current regulations have identified the regional management center of a public housing fund as a public agency, but in fact, the centers are functioning as financial institutions. For example, they are used to take deposits and issue loans. It is obviously illegal for a public agency to do financial business.” Wang Lina also said, if an organization was identified as a public agency, it was illegal to use the profits of a public fund to develop government-subsidized housing.

“Only commercial banks are authorized to use the earnings of a public fund. If it is only a fund or a trust under a public agency, the appreciation earnings will doubtlessly belong to the individuals who deposited into the public fund,” Wang Lina said.

However, if the management center of the public fund changes to a financial institution, the banking regulatory agencies will be its supervisor.

Far from Enough

For the huge engineering projects of government-subsidized housing, the current support from public housing funds is far from enough.

Statistics released by the MHURD show, the total amount of public housing funds reached two trillion Yuan in 2008, but only 561.6 billion was left after deductions. After deducting necessary provisions for the establishment of the fund, only 319.3 billion Yuan remains.

If 50 percent of the above capital was used for government-subsidized housing, that means only 159.7 billion Yuan could be invested in such projects, while, according to a report released by CITIC Securities, this year, China will invest around 430 billion in constructing government-subsidized housing.

Inadequate capital is not the only problem. Another difficulty is that public housing funds are regional. Qi Ji, Deputy Minister of Housing and Urban-Rural Development, said, since public housing funds could not be transferred across different regions, this has caused the loan rate of public housing funds in some provincial areas to surpass 90 percent, and in some areas with a less vigorous real estate market, much of public housing funds have been left idle. “That’s why we still have 200 billion Yuan left unissued.”

Chen Jie also said the imbalance of public housing funds among different regions was a big obstacle to further reform of the current system. He disclosed that the MHURD had already considered consolidating all local public housing funds and managing them as one. “It is meaningless for a single city to use a public housing fund to construct government-subsidized housing. Allowing the local public housing funds to be transferred freely across the country is the only practical way.”

“In the end the MHURD finally decided to have strict supervision and control risk first,” Chen Jie said. When Chen Jie attended the seminar held by the MHURD, there were many disputes regarding the consolidation of public housing funds such as who would use the money, who would manage the fund, and other issues that were left unresolved. Only when the Public Fund Management Regulations are revised, will it be possible to solve these problems.

However, right now, due to the huge pressure to develop government-subsidized housing, the MHURD cannot wait much longer.

This article was edited by Rose Scobie