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Urban housing policy and housing commercialization in socialist countries : China and Hungary Chen, Lijian 1988

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U R B A N HOUSING POLICY A N D HOUSING COMMERCIALIZATION IN SOCIALIST COUNTRIES: CHINA A N D HUNGARY  By LIJIAN C H E N B. Arch., Tsinghua University Beijing, China, 1984  A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF SCIENCE  in THE FACULTY OF GRADUATE STUDIES School of Community and Regional Planning We accept this thesis as conforming to the required standard  T H E UNIVERSITY  OF BRITISH  August 1988 © Lyian Chen, 1988  COLUMBIA  In  presenting  this  thesis  in  partial  fulfillment  of  the  requirements  for  an  advanced degree at the University of British Columbia, I agree that the library shall  make  permission  it  freely  available  for  for extensive copying  granted by the  reference  and  of this thesis  head of my department  for  or by his  study.  I  scholarly  further  agree  purposes  may  that be  or her representatives. It is  understood that copying or publication of this thesis for financial gain shall not be allowed without my written permission.  School of Community and Regional Planning The University of British Columbia 1956 Main Mall Vancouver, Canada V6T 1Y3  ii  ABSTRACT Housing was considered a public good rather than a marketable commodity at the early stage in the development of most socialist countries. Governments in those countries assumed  full  management,  responsibility  for  urban  housing  finance,  construction,  allocation,  maintenance and rehabilitation. A policy of low official rents and high  subsidies was adopted as the method to ensure that all urban residents would have access to the state built housing stock. Success in solving the housing problem was to be a showpiece for the socialist countries. However, after approximately forty years of development of the socialist housing economy, many urban residents in countries such as China and Hungary still face severe housing problems. The governments in these two countries have initiated a variety of new efforts in recent years in an attempt to improve the living conditions of their urban residents. In spite of this, many urban housing problems persist and some are even becoming worse. In view of this situation, both govenments have introduced new housing policies which recognize certain aspects of housing as a commodity within the socialist economy.  A major aim of these new  policies is to encourage individual financial participation in residential construction. This approach, commonly referred to as the policy of housing commercialization, is considered by government to be a feasible  approach to resolving the tenacious  urban housing  problem and an effective means to significantly improve living conditions for all urban residents. By undertaking a comparative study of China's and Hungary's urban housing policies, housing delivery systems and housing problems, this research endeavors to describe and assess the rationale and other associated factors behind this housing policy transformation in both China and Hungary. In addition, this research examines the lessons  of  Hungary's housing  policy  reform and concludes  recommendations for China's future urban housing efforts.  with  a  set  of policy  iii  T A B L E O F CONTENTS  ABSTRACT T A B L E OF CONTENTS LIST OF TABLES LIST OF FIGURES ACKNOWLEDGEMENTS  ii iii vi vii viii C H A P T E R 1. INTRODUCTION  1.1. 1.2. 1.3. 1.4. 1.5. 1.6. 1.7. 1.8.  Problem Statement A Clarification of "Housing Commercialization" Hypotheses .' Thesis Objectives Scope Methodology Why Compare China with Hungary? . . Thesis Organization URBAN  C H A P T E R 2. HOUSING POLICY, HOUSING D E L I V E R Y AND PROBLEMS IN H U N G A R Y  1 2 4 4 5 5 5 6 SYSTEM  2.1. Indices Relevant to Housing Development 2.1.1. Demographic Changes 2.1.2. Population Migration 2.1.3. Housing Production vs. Households  7 7 8 8  2.2. Housing Policy and the State's Role 2.2.1. The Ethos of Housing Policy -- Housing as a Public Good 2.2.2. The Goal of Housing Policy — Egalitarianism 2.2.3. Roles of the State and National Housing Plan 2.2.4. Housing -- a "Non-productive" Sector  9 9 9 10 10  2.3. Housing Delivery System 2.3.1. Housing Redistribution at the Initial Stage of Socialism 2.3.2. Dominant Position of the Government in Housing Distribution 2.3.3. Public Ownership vs. Private Ownership 2.3.4. Rental System - Low Official Rents and Rent Control  13 13 13 14 14  2.4. Urban Housing Problems and Their Social and Economic Impact 2.4.1. Urban Housing Problems 2.4.2. Social and. Economic Impact of the Housing Problems  15 16 19  2.5. Has the Housing Policy and Housing Delivery System Failed ?  21  URBAN  C H A P T E R 3. HOUSING POLICY R E - E V A L U A T I O N IN  3.1. Economic Difficulities and Questions 3.1.1. Economic Difficulities 3.1.2. Questions on Housing Policy  on Housing Policy  HUNGARY 24 24 24  iv  3.2. Re-examination of Housing Policy 3.2.1. A Vicious C i r c l e . . . . 3.2.2. Housing as a Commodity 3.2.3. Roles of the State 3.2.4. Equality vs. Inequality 3.2.5. Social Politicians vs. Reform Economists  25 25 27 29 30 32  3.3. Housing Policy Re-orientation and Justification 3.3.1. Housing Policy Re-orientaion in 1982 3.3.2. Housing Policy Justification  33 33 35  3.4. Consequence of the Housing Policy Reform 3.4.1. Reduction of Housing Inequalities 3.4.2. Growth of the Market Mechanisms 3.4.3. Preventing Reduction in House Building 3.4.4. More Choices and Aesthetic improvement 3.4.5. Decrease of Subsidized Housing Production 3.4.6. Housing Polarization  38 38 38 39 39 39 40  3.5. Major Concerns Regarding the New Housing Policy  40  C H A P T E R 4. U R B A N HOUSING POLICY, HOUSING D E L I V E R Y SYSTEM AND HOUSING PROBLEMS IN CHINA 4.1. Indices Relevant to Housing Development 4.1.1. Demographic Changes 4.1.2. Urbanization 4.1.3. National Wealth  43 43 45 46  4.2. Housing Policy and Housing Finance 4.2.1. Housing as a Public Good and the State's Role 4.2.2. Housing Finance  46 47 49  4.3. Housing Delivery System 4.3.1. Housing Redistribution at the Initial Stage of Socialism 4.3.2. The State's Dominant Role in Housing Distribution 4.3.3. Housing Tenure 4.3.4. Rental System  52 52 53 53 54  4.4. Urban Housing Problems and Their Social Impact 4.4.1. Urban Housing Problems 4.4.2. Social Impact of the Housing Problems  55 55 62  4.5. New Housing Goal and Housing Policy Questions  64  C H A P T E R 5. URBAN HOUSING POLICY R E - E V A L U A T I O N AND HOUSING COMMERCIALIZATION IN CHINA 5.1. Impact 5.1.1. 5.1.2. 5.1.3.  of Economic Reforms General Increase of Living Standard Housing Problems Placed at the Top of the Government Agenda Housing Achievement Since 1979  66 66 67 68  69  5.1.4. Housing Goals vs. Housing Problems 5.2. Housing Policy Re-evaluation 5.2.1. The Origins of Housing Problems 5.2.2. Housing as a Commodity 5.2.3. Is Housing a "Non-productive" Sector?  70 70 71 74  5.3. Rationale for Housing Policy Changes and Housing Commercialization 5.3.1. Rationale for Housing Policy Changes 5.3.2. What is Housing Commercialization? 5.3.3. Advantages of Housing Commercialization  74 74 76 78  5.4. The Housing Commercialization Pilot Program 5.4.1. Subsidized Housing for Sale Program 5.4.2. Rental Reform vs. the Wage System 5.4.3. Public Opinion Polls 5.4.4. Expansion of Policy Experiments in Housing Commercialization  79 79 82 84 84  5.5. Obstacles to Housing Commercialization 5.6. Conclusion  85 87  C H A P T E R 6. A COMPARISON B E T W E E N CHINA A N D H U N G A R Y 6.1. Similarities and Differences in Urban Housing Policies, Housing Delivery Systems and Housing Problems 6.1.1. Nature of Housing Policies 6.1.2. Housing Delivery Systems 6.1.3. Urban Housing Problems  88 89 .90 91  6.2. Factors Associated with the Housing Policy Reforms 6.2.1. Increase in National Housing Investment 6.2.2. Economic Difficulties vs. Economic Growth 6.2.3. Similarities and Differences in Housing Policy Justification 6.2.4. Different Starting Points 6.2.5. More Difficulties for China's Housing Policy Reform  92 92 93 94 95 95  6.3. What can China Learn from Hungary?  96  C H A P T E R 7. SUMMARY A N D CONCLUSION 7.1. Review of Hypotheses and Conclusion 7.2. Recommendations for the Implementation BIBLIOGRAPHY  of China's New Housing Policy  98 100 103  VI  LIST OF T A B L E S Table 1. Investment in Housing as a Percentage of Total Investment Outlays in National Currency (1950-1976)  12  Table 2. Surplus/Deficit: Household and Housing Unit Data in Hungary  16  Table 3. Surplus/Deficit: Marriage and Housing Unit Data in Hungary  17  Table 4. Population Changes in China (1949-1985)  44  Table 5. State Housing Investment in China (1950-1982)  51  Table 6. Changes of Per Capita Living Space in China's Cities  58  Table 7. Survey on Housing Facilities in China's Cities  59  Table 8. Urban Housing Construction in China (1979-1985)  68  vii  LIST OF FIGURES  Figure 1. Housing Management System in China  48  Figure 2. Schematic Illustration of Sources of Housing Investment in China  50  Figure 3. Urban Housing Situation in China (I)  57  Figure 4. Urban Housing Situation in China (II)  58  Figure 5. A Traditional Courtyard Housing in Beijing  60  Figure 6. A New Appearance of Courtyard Housing in Beijing  61  Vill  ACKNOWLEDGEMENTS  I would like to acknowledge the following people: Professor J. David Hulchanski and Professor Brahm Wiesman for their generous personal encouragement and support during my stay in Canada and for their consistent help and guidance in this research; and Professor Graham E. Johnson, Professor Alan F. J. Artibise and Professor Terry McGee for their invaluable critiques and advice on this study. I would also like to acknowledge Mike Beazley, Erasmus Morah, Barbara Pettit and my other colleagues in the planning school for their comments on this paper and for their help in editing with such skill, - patience, and good humor. In particular, I would like to thank Kent Munro, my friendly office mate, for his help in the past two years and his generosity in allowing me to use his computer. Acknowledgement is also due to my parents, whose guidance, encouragement, and values have provided me with the tools to pursue a happy and meaningful life; and my wife, Zhuangyi Zheng, for her understanding, support, and appreciated effort in collecting the Chinese literature relevant to this research. Last but not least, I would like to acknowledge  the Education Committee of the  People's Republic of China and the University of British Columbia for their financial support during my two-year education in Canada.  CHAPTER 1. INTRODUCTION  1.1. Problem Statement In early stage of the development of a socialist economy and society, the crux of housing policies was that housing was a public good. not perceived as a market commodity. housing investment,  Socialist states  1  In other words, housing was assumed full responsibility for  construction, distribution and maintenance.  Today, however, this  policy orientation is being widely questioned, re-assessed and modified in many socialist countries, as the demand for adequate shelter in these countries continues to exceed supply despite dramatic increases in residential construction.  Thus, in countries such as  China and Hungary, there is an increasing trend to consider housing as a commodity rather than a pure public good.  One major housing policy change, for example, in  China is the introduction of a program of housing commercialization.  This program  seeks to encourage a gradual increase in individual investment in housing as a means of supplementing the state investment in the housing sector.  China recently began a  series of small scale subsidized housing for sale programs to experiment with housing commercialization  methods.  To the  extent  that  this  fundamental  ideological  shift  (accompanied by significant policy modifications) is a fact in many contemporary socialist countries, the primary focus of this research is to understand: why housing is now viewed as a commodity in an attempt to solve the tenacious housing problem which the majority of socialist countries have faced By "socialist states" I include those that have formally incorporated the doctrines of "Marxist-Leninism" into their systems of government. Those are: Albania, Bulgaria, China, Czechoslovakia, German Democratic Republic, Hungary, Poland, Romania, the Soviet Union and Vietnam. All these countries' housing policies, with some minor differences, have a common origin - the housing policy model of the Soviet Union, which was initiated by the government of the Soviet Union based on a Bolshevik interpretation of Marx's thought on cities and housing. A detailed discussion on the Soviet Union's model can be found in A. Nove's (1893)The Economics of Feasible Socialism. 1  2 for over thirty years, and as a corollary, why the previous housing policy orientation, treating housing as a welfare good, was not able to successfully serve the demand of urban citizens? To address this research question, the paper undertakes a comparative study of China and Hungary's urban housing problems and housing policies.  The following  questions are also addressed: 1.  What is meant by housing as a public good and how did the socialist housing system function?  2.  What is the nature of the urban housing problem faced by socialist countries, what are the causes of these problems, and why have the previous housing effort failed to solve these problems?  3.  What does the literature reveal about the social impact of previous housing policies and problems in China  and Hungary?  And what  are  the  similarities and  differences between these two countries? 4.  What specific factors, both internal and external, precipitated the re-examination of the housing policy?  What are the  reasons  for housing being viewed  as a  commodity in socialist societies? 5.  What is housing commercialization and what are its mechanisms?  Why is housing  commercialization viewed as a feasible solution to various housing problems? 6.  What  are  some  of  the  commercialization in China?  obstacles  to  implementing  policies  for  housing  What approaches must be taken in order to ensure a  positive outcome for urban housing policies?  1.2. A Clarification of "Housing Commercialization" The term "housing commercialization" in this paper is used to describe major current housing policy changes, in China and Hungary. longer considered a pure public good. has a market value.  It means that housing is no  It is now also viewed as a commodity which  However, this by no means implies that housing has become  3 purely a commodity which can only be bought and sold at a fair market price. concept  of  "housing  commercialization"  reflects  the  governments'  commercialize housing to a certain extent so as to encourage  The  intention  to  a gradual increase in  individual financial participation in residential construction. Some literature, especially that regarding China's housing policy, uses the term "commodification" in place of "commercialization" or use both interchangeably.  The term  "commodification" is considered inappropriate in this paper because it seems to suggest that housing  be treated  as  a pure commodity.  In reality,  the  vast majority of  programs involving housing built for sale currently introduced in China require high subsidies  by  both  government  and  work  units.  Other literature,  2  regarding Hungary's housing policy, uses the word "privatization".  especially  that  It is possible for  Western readers to associate this terminology with the interpretation of capitalist housing markets because it is commonly used literature in English. (1987)  devotes  a  whole  paper  to  an  attempt  to  explain  In view of this, Tosics how  the  "privatization" in Hungary differs from that of Western privatization.  meaning  of  Still, English  literature on Hungary's housing policy tends to use "privatization" more than either "commodification"  or  "commecialization".  The  term  "privatization"  is  considered  inappopriate in China's cases because "privatization" appears to imply private ownership but these so called "home owners" in China have paid only a percentage of the full cost for their housing units.  Thus, this research chooses the term "commercialization"  for this paper's title because it reflects the essence of housing policy changes in both China and Hungary and because it avoids possible misleading interpretations.  As the  paper develops, a fuller explanation of "housing commercializtion" will be given.  A work unit is a generic term which refers to any workplace such as governement offices, factories, universities or any other institutions in which people work. 2  4 1.3. Hypotheses The following four hypotheses will be tested in this paper: 1.  Perennial housing problems and housing development in China and Hungary are evidence that previous socialist housing policies have been ineffective.  2.  Housing commercialization as a major element of new housing policies has both positive and negative impacts on equality of housing provision.  3.  The policy of housing commercialization is a feasible approach to improve current urban housing conditions and to rationalize the housing system in China.  4.  The lessons learned through housing policy reform in Hungary are valuable to the formation and implementation of housing policy in China.  1.4. Thesis Objectives The objectives of this thesis are to: 1.  contribute to the  literature in English on housing policy and development in  socialist countries by drawing on a comparative study of China and Hungary; 2.  present a more accurate and comprehensive picture of housing issues in China, as there is a great deal of counterfactual and misleading literature in this regard; and  3.  identify and analyze the origins- of housing problems, the rationale and impact of housing policies and the difficulties of introducing a new housing policy;  4.  provide valuable experience and lessons for the benefit of China's housing policy reform by studying housing development in Hungary.  5 1.5. Scope The focus of this thesis is urban housing in China and Hungary.  The analysis  of housing policies and housing delivery systems focuses mainly on the impact of the high subsidy and low official rent policy.  The thesis concentrates on the feasibility of  the housing commercialization program rather than other relatively small scale housing programs.  Although this thesis is specifically concerned with the examples of China  and Hungary, references to cases in capitalist and other socialist countries are relevant and helpful in comparing and clarifying some concepts.  1.6. Methodology This  research  is  based  primarily  literature in English and Chinese as practitioners and colleagues.  on an extensive  well as  the  review  contributions  of  the  available  of advisors, some  There are many similarities in the housing problems and  policies of socialist countries making a comparative study of the two selected socialist countries most appropriate.  1.7. Why Compare China with Hungary? The selection of China and Hungary for this study is based on the following. Both countries system.  are characterized by a highly centralised  "socialist"  economic  Also, both have experienced significant political upheavals in their socialist  development which resulted in serious stagnation of housing construction. Despite distinctive differences  in population size, geographical area and culture  (which are significant factors pertaining to housing policy analysis), there are many similarities between China's and Hungary's housing policies, housing delivery systems and housing problems.  These common characteristics make a comparative study of  housing policy in the two countries sound and feasible.  6  Because the pace of housing policy reform in Hungary appears quicker than that of other socialist countries, both theoretical and empirical aspects of housing issues have been debated more broadly and in greater depth.  In addition, there is more English  literature available about Hungary's housing issues than other Eastern bloc socialist countries.  As such, this comparative study is significant because China may learn  valuable lessons from Hungary's experience.  1.8. Thesis Organization The thesis consists of seven chapters.  Chapter Two describes and analyses the  housing policies, housing delivery system and problems in Hungary.  Chapter Three  reviews and summarizes arguments that re-examine previous housing policies and justify new housing policies in Hungary. development in China. discuss  the  Chapter Four focuses on the discussion of housing  A framework similar to the Hungarian case is employed to  China's case in Chapters Four and Five.  Chapter Six compares the  experience of the two countries and identifies some aspects of Hungary's recent housing policy changes which deserve attention in China. a review  Finally, Chapter Seven concludes with  of the previously stated hypotheses and with some recommendations for  housing policy in China.  7  CHAPTER URBAN  2.  HOUSING POLICY, HOUSING DELIVERY AND PROBLEMS IN HUNGARY  SYSTEM  This chapter describes Hungary's housing policy and housing delivery system as it operated until the late 1970s, and examines various urban housing problems as well as their accompanying social and economic impact in that housing policy setting. increasingly widespread dissatisfaction  The  with the housing situation eventually brought the  housing policy and delivery system into question.  2.1. Indices Relevant to Housing Development The following three categories of information, which are most relevant to housing development in Hungary, provide a general picture of Hungary's population changes and their relation to housing development.  2.1.1. Demographic Changes Hungary had a population of 10.6 million in 1986.  Before 1980 the population  had increased steadily by an average annual rate of 0.4 percent (Bureau of the Census 1987, p.816).  After 1980, the population started to decline at an average annual rate  of 0.1 percent.  Between  1960 and 1975, the growth of the total population was less  than anticipated (Baross 1985, p.l). dramatically.  This  unexpected  The number of households, however, had increased  increase  is  attributed  to  factors  such  as  the  large  number of young people starting families, high divorce rates, and the rapid growth in the  number of single  consequence were  of these  person  or "incomplete"  significant  337,000 more independent  demographic families  households  (Baross  and household  1985,  formation  in need of housing than the  3,542,000 between 1960 and 1975 (Baross 1985, p.l).  p.l).  As a  changes,  there  "planned for"  8 2.1.2. Population Migration  Although detailed data indicating the trend of population migration from rural to urban areas are not available, most literature pertaining to Hungarian housing issues agrees that the significant has  continuing population migration from villages  pressure  attracted large  on the  to cities has  supply of housing in urban areas.  numbers of rural  migrants to  created a  Rapid industrialization  work in newly  built or expanded  factories in cities and towns but has failed to build an adequate number of dwellings to house them.  It is believed that the current high level of migration will be maintained  as the government continues to pursue a policy of rapid industrialization.  2.1.3. Housing Production vs. Households  One widely employed criterion for measuring the quality of living conditions is the  ratio  between  households  and  housing  units.  This  is  expressed  in  two  ways.  Firstly, an adequate and acceptable living condition implies that the number of housing units available for occupancy in a country should exceed, or at least roughly equal, the number of households, own (Morton 1979,  arid secondly each individual should have a room of his or her  p.304).  The former was reflected in the housing goals declared by  Hungarian government in 1960 to be achieved by the end of the 1960-75 housing plan. Unfortunately,  to date,  Hungary  is  still suffering from a deficit of housing units in  relation to the number of households (Morton 1979, p.304).  Hungary in the housing construction.  past  two  decades has reached a commendable achievement in  The implementation of the  construction of one million new dwellings. per dwelling unit from 1.3 to 1.12 1.57  (Baross  1985,  p.l).  Despite  1960-70 housing plan resulted in the  This helped decrease the number of families  and the number of persons per room from 2.36 to the significant increase in the number of dwellings,  however, 470,000 families were estimated to be unable to procure a house of their own by the end of the  plan period.  This  problem, regarded as  the "permanent housing  9 crisis" in Hungary as well as in other Eastern European countries, means that there are not enough self-contained housing units, apartments, or homes for every household. This housing shortage is discussed in greater detail in Section 2.4 of this chapter.  2.2. Housing Policy and the State's Role  2.2.1. The Ethos of Housing Policy -  Housing as a Public Good  In the early stages of the development of a socialist economy and society, in Hungary as well as in other Eastern European socialist countries, housing policy was based  on  the  economic  concept  that  housing  is  not  a  marketable  commodity.  Consequently, housing had been removed from the open market and become a public good which was allocated according to need or merit by administrative processes. were low and bore no relation to cost.  Rents  It was believed that the state should assume  full responsibility for the provision of adequate  housing.  In principle, each family  should benefit equally from housing investment and from the overall growth of the national economy.  Eventually, every household would acquire its own dwelling through  the mechanism of socialist allocation rather than ability to pay which is the allocative device in most capitalist countries.  2.2.2. The Goal of Housing Policy -- Egalitarianism  The promotion of equality has been a major preferred goal of housing policy in socialist countries.  "One of the major principles applied in the solution of the housing  problem is that of providing approximately equal living conditions, as far as possible, to virtually the entire population" (Nechemias 1981, p.l).  Guided by this housing goal,  most formal statements of housing policy were primarily egalitarian in nature. reality, however,  this goal has not been achieved.  In fact,  In  the housing allocation  mechanism in Hungary seems to generate new inequality in the distribution of housing.  10 This is further examined in Section 2.4 of this chapter.  2.2.3. Roles of the State and National Housing Plan The mechanisms  of the market did not play a significant role in the housing  sector in Hungary as the government assumed comprehensive responsibility for housing. The proportion of state budgets for housing investment, the scale of house building and major forms of construction were determined by the requirement of a broader economic strategy.  Housing  programs,  as  an  integral  prepared by central planning commissions plans,  while  organized  the  by  building and  regional  and  levels  of  the  national  in accordance with the  distribution of  local  part  of  houses  in the  government.  In  economy,  were  successive economic  programs 1960,  were mainly  the  first  15-year  housing program was launched in which the state promised "an individual dwelling for every  family" (Baross  1985,  p.l).  A second  15-year  housing plan was  prepared in  1975 which took into account demographic changes and once again declared that "the 'quantitative' housing deficit will disappear when all the planned houses are constructed" (Baross 1985, p.3).  2.2.4. Housing -- a "Non-productive" Sector In  Hungary, the  housing; however, housing sector. considered  of  the  p.30).  promises  economic  housing  development  "productive" industrial sectors.  surprising  construction fell below 1983,  firm  "non-productive" sector  Consequently,  a  given  to  eliminate  the  deficit  in  adequate levels of capital investment have not been allocated to the  compared to other experienced  has  The major concern is  part  economy.  state  the  decline  in  level  of the  This decline was  residential 1940s,  growth, of  the  received  residential  economy a  Between  low 1950  construction.  -  construction a  drain  investment  was  on  the  priority  and 1955, Hungary The  1930s and even the  rate  of  house  1920s (Szelenyi  a deliberate component of the state's economic policy.  11 In those early years  under the  new  regime,  the  economic  promoting extensive and rapid industrialization.  It  development  long term economic  of heavy  industry would serve the  was  policy was  believed  committed to  that only the rapid interests of the  whole society.  Starting  in  1961,  Hungary increased  its  housing  investment  dramatically.  It  spent 4.5 times as much money on housing in 1976 as it did in 1960 (Morton 1979, p. 311).  Also,  increased  to  European  countries  clearly  the 17.8  indicated the  percentage percent (see  in  Table  increasing  share 1976 1).  of in  the  total  Hungary,  The change  concern of the  national  capital  exceeding  of  all  investment  government  investment  the  other  patterns  in satisfying  has  Eastern  in Hungary the  housing  needs of its citizens. However,  the  higher  investment  rate  did  increase in the construction rate of dwelling units.  not  correspond  with  a  significant  As Morton explains:  This was largely due to rising expenses: housing units built in urban areas were larger and better equipped in 1976 than in 1960 and therefore more costly; inflation of building materials and wages also raised construction costs (more for some countries than for others) and widespread use of individual prefabricated component parts for multi-dwelling units may have been more expensive than traditional construction methods..." (1979, p.311). When the have  state's sources  of investment  were limited and the housing sector did not  priority in national capital investment,  it  was  difficult  for  the  produce sufficient housing stock to meet the increasing housing demand.  state  alone  to  Table 1. Investment in Housing as a Percentage of Total Investment Outlays in National Currency 1950-1976 (Million)  1950 Capital Investment Bulgaria Czechoslovakia G.D.R  %  1960 Capital Investment  %  1965 Capital Investment  %  1970 Capital Investment  %  1976 Capital Investment  %  78  21.1  193  14.1  238  12.0  345  9.7  580  10.8  3,368  17.0  8,916  15.3  9,445  14.7  15,789  17.3  16,444  13.9  1,911  11.9  1.596  7.8  1,888  5.8  3,841  8.4  —  —  Hungary  4,180  20.0  6,628  15.6  8,194  16.8  16,432  16.6  29,416  17.8  Poland  4,538  11.7  24,159  21.7  28,872  18.7  35,918  15.8  68.304  12.6  Romania  708  11.2  4,340  15.7  5,053  10.7  7,859  9.8  13,476  9.0  U.S.S.R.  2,300  18.0  9,456  22.5  9,638  16.9  13,439  16.4  16,444  13.9  Source: Statisticheskii ezhegodnik stran-chlenov Soveta Ekonomicheskoi Vzaimopomoshchi, 1977 (Moscow: Statistika, 1977), pp. 137, 143; Statisticheskii ezhegodnik stran-chlenov Soveta Ekonomicheskoi Vzaimopomoshchi, 1971 (Moscow: Statistika, 1971), pp. 141, 148.  13 2.3. Housing Delivery System  2.3.1. Housing Redistribution at the Initial Stage of Socialism  The first overall assessment of the housing stock in socialist Hungary, conducted in 1949, revealed severe housing problems such as overcrowding, lack of basic facilities and insanitary living conditions.  A sharp contradiction existed in large cities such as  Budapest: massive worker tenements and squatter areas versus luxurious villas in the elegant districts of the city.  These housing problems were believed  to have been  created by the previous social system and would be readily solved once that system was overthrown (Engels 1872, p.30). to  eliminate  the  social  injustices  In order to provide shelter for the homeless and of  earlier  years,  the  primary  tasks  of  socialist  reconstruction of the housing sector appeared to be clear: the immediate redistribution of the housing stock to make maximum use of surplus accommodation, the repression of the market mechanism to avoid sharp price competition for what existed and the development of an efficient (socialist) construction industry, which could rapidly increase the production of new units (Baross 1985, p.5). The approach of "immediate redistribution", initiated according to egalitarian principles, was  implemented  by  nationalizing  or  confiscating  privately  owned  (mainly  landlords') properties and re-allocating surplus rooms to needy urban residents. result  of this redistribution effort,  some severe housing  large As a  problems were temporarily  relieved.  2.3.2. Dominant Position of the Government in Housing Distribution  The  implementation  establishment  of  the  of  the  aforementioned  state's dominant  position  construction and regulating housing distribution. the  national  income  that  could be  allocated  institutions to carry out housing activities.  in  primary  tasks  soon  directing resources  led  to  the  to residential  The state determined the proportion of for  housing  and established  various  Thus, it assumed general responsibility for  14 meeting the housing needs of the society.  2.3.3. Public Ownership vs. Private Ownership  Through  the  consistent effort  of  the  state  to  promote  nationalized building  companies so as to increase the number of dwellings in state ownership, the annual new housing construction financed by the state has increased from 16.6 percent of the total housing stock built in the country in 1950 to 41.1 percent in 1970 (the highest percentage in history) (Morton 1979, p.316). new  housing  significant sector.  construction  started  to  After 1970, the state's share of annual  decrease because  proportion of housing construction, therefore,  of economic  difficulties.  A  remained within the private  It is important to note that despite the fact that the private housing sector  was neither favored by the state's housing policy nor given any subsidy or financial support, it survived.  In fact, it played an important supplementary role to the public  housing sector as the state has never been able to supply adequate public housing to all urban inhabitants.  2.3.4. Rental System « Low Official Rents and Rent Control  In Marxist thought, private landlords and rents have been regarded as symbols of the exploitation of man by man. to abolish both of them together.  Therefore, it seems natural for socialist countries  After nationalizing housing, the state redistributed the  houses to needy social groups and required only a nominal rent from the recipients. The adoption of this low rent policy at the beginning of socialist Hungary was viewed as a transitional one which eventually would lead to the provision of free housing (Donnison 1967, p. 121). Official rents were so low that they barely covered one third of the cost of maintenance and depreciation (Baross 1985, p.6). proportion of a family's income.  Rents accounted for only a negligible  By 1970 rents consumed only 2 to 3 percent of the  15 average  family  housing heavily.  budget.  Therefore,  it  became  necessary  for  the  state  to  subsidize  Normally subsidies were given to the institutions that administered the  housing stock rather than to individual residents,  meaning that the subsidies  benefited  all dwellers, regardless of income.  The high subsidy and low official rents is one of the most outstanding features of housing policy in Hungary and most other socialist countries. policy in most European socialist  countries  and economic conditions they inherited.  derives  The rationale for this  mainly from the  inequitable social  As Andrzejewski points out:  It was thanks to this policy that the socialist countries were able, immediately after the war, to introduce radical changes in the housing conditions inherited from the capitalist economy and to even out inequalities through the distribution of dwellings newly constructed with public funds (1967, p.153). Moreover, Baross observes that: The housing shortage that existed in Hungary in 1945-50 would have led to sharp rises in rents had the capitalist market mechanism been allowed to prevail (1985, p.5). Rent control was another approach employed to mitigate the market pressure on the housing sector.  Uniform rent levels were institutionalized in 1950  for both public  and private rental housing, with minor variations which took into account floor space, level of services,  quality, age  and location of housing stock.  Controlling rents  at a  very low level ensured that the lowest income group was able to afford rental housing.  2.4. Urban Housing Problems and Their Social and Economic Impact Although  some,  like  Engels,  redistribution of housing ownership countries did not vanish.  thought (1872,  that p.30),  most  needs  could be  met  urban housing problems in  by  the  socialist  This apparent misconception can be explained partly by the  fact that it was difficult for theorists to foresee the changes that occurred in the size and structure of the population and the pace of migration to cities. the  capitalist  system,  Despite abolishing  many urban housing problems which are common to capitalist  16 societies still remain in Hungary, and some of them have become even more acute.  2.4.1. Urban Housing Problems  Shortage.  After more than thirty years of socialist construction, the shortage of  housing remains the most critical housing problem in Hungary.  There is no doubt that  the severe housing shortage has been eased to a great extent compared to the 1950s. Yet  the promise of "an individual dwelling for every family" remains unfulfilled for  thousands of urban inhabitants.  In 1975, some 470,000 families were not able to find  a housing unit of their own, of which 65 percent were in Budapest and other towns (Sillince 1984,  303) (see Table 2).  This has meant that a considerable number of  unrelated families still live in co-tenancy or sublease arrangements, sharing kitchen, bath, and toilet facilities with strangers. Table 2.  Surplus/Deficit: Household and Housing Unit Data in Hungary Number of Households (000s)  Year 1949 1960 1975 1981* 1991"  2,746 3,067 3,880 4,022 4^070  Number of Housing Units (000s) 2,480 2,720 3,410 3,650 4,000--4,100  Housing Deficit (000s) 266 347 470 372  * Estimates Source: Based on P. Baross, "Managing the Housing Queue: The Current Debate on the Character of S o c i a l i s t Housing i n Hungary", p.25.  The ratio between the annual number of marriages and the annual number of new housing units built is another indicator of the deficit of housing units in Hungary. Table 3 indicates that in no year did the number of housing units built exceed the number of marriages. dwellings  in 1971  Even though the deficit has been sharply reduced from 18,900  to 875  in 1975,  the cumulative deficit of dwelling units built  17  (269,010) compared with the number of marriages (1,149,203) is overwhelming.  3  This is  why most newly married couples still have to wait years before moving into a flat of their own.  Table 3.  Units built  +Surplus -Deficit  88,566 89,611 93,230 96,199 95,613 95,614 96,612 94,202 97,710 101,614 99,775 100,457  58,059 54,597 55,592 62,633 67,084 61,845 80,276 75,302 92,194 ,85,211 87,800 99,600  -30,507 -35,014 -37,638 -33,566 -28,529 -33,769 -16,336 -18,900 - 5,516 -16,403 -11,975* 857  1,149,203  880,193  Year  Marriage  1960 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 Total *  Surplus/Deficit: Marriage and Housing Unit Data in Hungary Marriages p e r 1000 population 8.9 8.8 9.2 9.4 9.3 9.3 9.3 9.1 9.4 9.7 9.5 9.8  Units b u i l t per 1000 population 5.8 5.4 5.5 6.1 6.5 6.0 7.8 7.3 8.7 8.2 8.4 9.5  •- 2 6 9 , 0 1 0  t h i s f i g u r e has been c o r r e c t e d . Due t o a p e r c e i v e d m i s c a l c u l a t i o n , S o u r c e : Based o n W. H. M o r t o n , " H o u s i n g P r o b l e m s a n d P o l i c i e s o f of Eastern Europe and t h e S o v i e t U n i o n " , p . 3 0 6 .  With a vacancy rate of zero, the urban housing deficit is really much larger than the figures indicate.  These figures do not take into account the large number of  commuters who would have moved into cities if they could have done so.  Also, the  lengthy waiting list does not give a place to those people who wish to move out the extended family housing. The  housing shortage is still the problem which overshadows  result, government housing efforts  all others.  As a  have constantly addressed this issue, which to some  extent has diverted attention from other manifestations of the housing problem. A more accurate measure would subtract the number of housing units which become available through the death of the occupant. Adequate data, however, are not available. 3  18  stock  Deterioration.  Necessary maintenance and rehabilitation of the existing housing  was  neglected  frequently  addition, state subsidies  because  rents  did not  were normally targeted  cover  for new  maintenance  costs.  construction because  it  In was  more convenient and physically and socially more attractive to replace old housing units than to improve them.  Consequently, existing houses were not properly maintained and  timely repairs were largely neglected.  Between  1950 and 1975  approximately 335,000  dwellings were demolished, equal to about 20 percent of all new housing built in the same period (Baross  1985, p.7).  More seriously, there is an even greater number of  housing units requiring urgent repairs.  Visual monotony and quality problems.  The overwhelming impression of the  new urban landscape that a visitor usually gains is one of unbroken and uniformity.  unaesthetic  This is also the view of the inhabitants, architects and officials.  Morton  observes: Most new residential areas resemble others. They consist of row after row of rectangular buildings of five and eleven stories placed on a grid with little angular differentiation to relieve the stark monotony (1979, p.319). Szelenyi,  a  leading  Hungarian sociologist,  in  his  influential  work  Urban  Inequalities  Under State Socialism has an even more vivid and interesting depiction of this bleak urban phenomenon in Eastern European countries: Go for a walk in a new housing development in Budapest, Prague, and Moscow -- it will take you some time to find out which country you are in. Visit a fellow sociologist in East Berlin or Warsaw -- the size of his flat will be about the same as yours in Budapest or Sofia, he will pay about the same proportion of his income as you do for rent, you could probably swap furniture without noticing a change (1983, p.2). This  situation  process.  is  mainly  attributable  to  the  state's  monopoly  over  the  construction  All the medium and high rise apartment buildings are built by the state,  which are usually rigidly alined on a large piece  of land.  The building process  characterized by assembling large prestressed component building parts at the site. highly industrialized method of construction is believed time-saving.  to be  more  is  This  cost-effective and  Unfortunately, although the problem of visual monotony is  acknowledged,  19 the overwhelming demand for housing has exhausted  most of government's housing  efforts so that little remains to solve aesthetic concerns. There is a considerable dissatisfaction expressed by those living in state built housing.  Many residents complain about the rigid layout of houses which allows little  flexibility for changes in life style.  In addition, the exterior and interior of buildings  are frequently poorly finished.  2.4.2. Social and Economic Impact of the Housing Problems  Common ' property  problems.  The redistributive policy institutionalized new  tenure concepts of "co-renters" and "sub-renters" since many unrelated families were required to share dwellings.  Unfortunately, problems of overcrowded living, and tensions  caused by shared kitchens, bathrooms and toilets by unrelated and frequently hostile families soon occurred and became acute.  "By the mid 1960s, many 'social problems'  in Hungary were linked to the 'housing problem' of co-renters and sub-renters', such as the high divorce and suicide rates and the lowest birth rate in Europe" (Baross 1985, p.5).  Couples having their first child while they still live in co-tenancy are unlikely to  have a second if it means suffering from even greater crowding and lowering their living standards.  These problems caused a great deal of public resentment towards the  urban policy and housing policy in particular. Problems  of manpower.  Acute urban housing  far-reaching economic and social consequences  as well.  manpower shortage and a high mobility of labor.  problems have  resulted in  Most cities suffer from acute  Factories and government institutions  are frequently unable to hire workers and employees because there are no houses to accommodate them. frequent job changes. working age.  In turn, poor accommodation is one of the major factors causing Cities have a large number of pensioners and too few people of  The shortage of manpower has seriously interfered with the social and  economic development of urban areas.  20 Informal housing sector. eliminated completely  despite the dominant role of administrative allocation and the  implementation of rent control. occur informally.  The market mechanism in Hungary has not been  Both private and state owned housing transactions can  As Baross observes, two important loopholes created a "black" market  for housing, which is an expensive way for some families to resolve their housing problems. occupied  One was the possibility of exchanging dwellings among those who already them.  In  the  process,  the  agreement  among  families  often  involved  (undeclared) cash payments which reflected the real qualitative differences (location, size, level of comfort, etc.) between the dwellings. times the annual rent (Baross 1985, p.6).  The payment could be as high as five The other expensive housing solution for  families who do not want to wait in the housing queue was sub-renting.  As long as  the chief tenant (or owner) lives in the same apartment, sub-renting is in line with the state encouraged. "voluntary" reduction of space consumption.  However, rent control is  not enforced in this sub-market, leaving the state with no control over rents paid by subtentants. Unequal distribution of housing.  In the early 1970s, an increasingly vocal  group of housing professionals began to raise questions regarding equality in housing distribution.  The core of their argument, supported by empirical documentation, was  that administrative allocation of housing by the state had produced strong housing inequalities  among various sectors of the  housed/homeless) (Baross  1985,  p.3).  population (urban/rural, managerial/worker,  Actually,  these new  kinds of inequalities were  discussed as early as the late 1960s by Szelenyi and his colleague Konrad. supported the housing inequality argument with convincing empirical data.  Szelenyi  The survey  recorded in his work shows that it is mainly the middle class - clerical workers, professionals, intellectuals, bureaucrats, and the like - who live on these housing development [the housing estate financed and built by the state]. Skilled workers are reasonably well represented, but the bulk of the working class is nowhere to be seen. This meant that the state housing was being allocated to the higher income groups and not to the proletariat (1983, p.6).  21  Szelenyi ends the book with two conclusions  about Hungary's housing  system:  housing inequalities are being created now, as those with higher incomes get the better housing; and these inequalities are being created by administrative allocation, i.e. by the distinctively socialist mechanism which was supposed to replace the capitalist market method of allocation (author's emphasis; p.6).  Obviously, implementation government's  it  of  is  such  low  state  providing  housing  housing.  housing  but  state's  policy.  Thus,  bureaucrats,  newest state  a  the  intention  However,  the  priority on housing investment  units for all citizens. subsidized  not  with  of  teachers,  the  major  doctors,  and  at very low rent. low  social group have  market.  Gradually,  housing inequalities  the  limited  inequality  available  through  resources  social  criteria key  In contrast, status  is  have  to  reward  personnel  the  the  and  did not help produce sufficient  other  which is usually in poor condition and has few this latter  create  much more narrow criteria are used to allocate One  relatively  to  housing  the highly  achievement  with  the  the  best  by and  majority of those in need of  access  to  amenities.  only  older  Worse yet,  state  housing  many people in  to build a dwelling themselves or buy one in the "black"  administrative  under the socialist  allocation  mechanism  has  created  these  new  economy.  2.5. Has the Housing Policy and Housing Delivery System Failed ?  In associated and  view  of  social  and economic  delivery  system  1960-75  housing  family"  to  attempt  be  to  investment target  as  be  plan,  improve  acute  and  questioned.  by  tenacious  impact, it is  and by  achieved  By  formulating  promising the  1975,  significantly  the  as  a  whole.  boarders  is  plan.  There was  For instance, one  of the  most  and  goal of an  government  housing  urban  housing  imperative that the  conditions  has increased year after year to achieve  outlined in the  situation living  Hungary's  problems  "individual a  for  its  great  the  ambitious  dwelling for commitment  people.  Indeed,  falling  obvious  every in  an  housing  the quantitative housing construction  undoubtedly some improvement of the  the  the  previous housing policy  implementing  made  and  number  indications  of  homeless  of the  and  housing  of  families  improvement.  There  22 were also improvements in housing quality and facilities.  However, it is argued by  Szelenyi that the general improvement was not mainly due to state construction or state distribution.  He demonstrates that "individual effort, hard-working self help and  mutual help, and family connections and inheritance provided for many more families than did the state's much-publicized housing activities"  (1983,  p.67).  Thus, it is  maintained by many that a housing policy based on the conception of housing as a public good has not led to a significant improvement in urban housing conditions.  Nor  has it been able to meet the growing demand of urban citizens in spite of successfully increasing the number of housing units built each year.  Moreover, in view of the  rapid population migration and other demographic and household formation trends, the state alone was simply not able to generate additional sources of capital to react to these unexpected factors. These facts clearly suggest that serious shortcomings exist in Hungary's housing policy and housing delivery system. that they have failed.  However, it would seem unreasonable to conclude  Had the government given high priority in capital investment to  the housing sector and made a greater commitment to residential construction from the very beginning of the socialist state, and had state resources not been concentrated on supplying free or near-free housing to a privileged minority, but instead had been distributed more widely and evenly among all population groups, housing policy might have operated successfully to meet increasing housing demand and to alleviate housing inequality problems.  Though impossible to prove, it is reasonable to believe that such  alternative policies might have created a better housing situation. The widespread dissatisfaction with the present housing situation has provoked a serious re-examination of the housing policy and delivery system. modifications of housing policy have been made.  As a result, certain  In preparing the second 15-year  housing plan, the government has again promised to provide an individual housing unit for each family by the year of 1990.  In the next chapter, critiques of the previous  23 housing policy and delivery system and the rationale for housing policy modifications are examined at length.  24 C H A P T E R 3. U R B A N HOUSING POLICY RE-EXAMINATION IN HUNGARY  The previous chapter presents housing policy and the housing delivery system as it operated until the late 1970s as well as housing problems and their associated social and  economic impact.  This chapter reviews  housing policy changes in Hungary  since  then and examines reasons for these changes.  3.1. Economic Difficulties and Questions on Housing Policy  3.1.1. Economic Difficulties The  recession  experienced by western  economies in the middle of the seventies  did not by pass Hungary, but it arrived some years later. Hungary encountering great economic  difficulties.  already serious shortage of national resources  The end of 1970s saw  This economic  crisis aggravated  for housing investment.  the  As a result of  the state's reduction of housing investment, the production of housing, which had peaked in the second half of the seventies, began to decrease slowly.  It was soon clear that  a housing policy dependent on heavy subsidies could not be maintained for long (Tosics 1987, p.70).  3.1.2. Questions on Housing Policy One central housing policy question at the end of the 1970s was how to satisfy the need for a substantial quantity of housing and the growing quality requirements. In  view of limited national resources,  it was  dubious that the current housing policy  would be effective in solving the housing problems of shortage and low standards.  As  dissatisfaction of many urban residents with their housing situation became more intense,  25 the government started to realize that the existing housing policy had to be revised. Another significant Konrad  question  in their provocative  Hungarian cities,  for housing policy, first, raised by Szelenyi and  and influential  report on the  is that housing inequalities  housing survey  of two  were being created by administrative  allocation - higher status groups were allocated most of the good quality housing almost free.  That  technicians  is,  higher  status  occupational  groups  (senior  bureaucrats,  intellectuals,  and clerical workers) paid proportionately much less of their income for  housing than did lower status occupational groups. income groups benefited  These higher status and higher  most from the government's  highly subsidized housing while  lower status and lower income groups had to rely mainly on their family financial resources to obtain housing.  After intensive debate by housing experts, it was agreed  in principle that the existing housing policy and delivery system was responsible for the occurrence of new housing inequalities under the socialist economy.  By the beginning of  the eighties, the political leaders of Hungary had realized that re-orientation of housing policy and reform of the housing delivery system was essential in order to increase housing production and to mitigate the problem of housing inequalities.  3.2. Re-examination of Housing Policy  3.2.1. A Vicious Circle Housing had been viewed as a public good rather than a market commodity since  the  establishment  of  socialist  Hungary.  The  responsibility for meeting housing needs of the society.  state  thus  assumed  general  Based on this approach, housing  had been officially removed from the market place and distributed at artificially low rents.  As expressed officially, the state had to provide for housing through central  redistribution of national income. those of infrastructure in general.  Therefore, wages did not include costs of housing and This implies that by right everyone in Hungary was  26 entitled to housing provided by the state. However, housing is such an expensive and durable consumer item that it has long been considered the most financially unprofitable of all consumer goods to produce in Hungary.  It normally requires a considerable amount of initial capital investment.  Even if housing is treated as a market commodity, it usually takes a much longer term to recover costs or realize profit than other consumer goods.  Thus, it is not  surprising that economic planners saw housing investment as "returnless expenditure" because housing units were distributed to urban inhabitants (Szelenyi 1983, p.32).  nearly free  of charge  Influenced by this conception, the state had continued to place  its investment priority on socialist industrialization, hoping that the growth of productive industrial sectors would generate more national income and hence there would be more financial  resources  available  for  other  "non-productive"  sectors  such  as  housing  construction. This expectation turned out to be contrary to results.  The severe social and  economic consequences of housing problems actually impeded rapid industrial development. Consequently, a vicious circle was created: housing problems caused social and economic problems; the latter hindered economic growth and generation of greater national wealth; this then resulted in less available funds for residential construction.  Moreover, other  factors such as population migration to urban areas and household formation changes exerted even greater pressure on residential construction.  As a result, housing demand  seemed bottomless and it became increasingly difficult for the state to allocate sufficient funds for residential construction.  27 3.2.2. Housing as a Commodity According soon  expect  Therefore, people's  a  the  to  Marxist  much  theory,  more  socialist  rapid  socialist rate  greater  economic  highly  of  upon  economic  their  growth  provision  development  compared  to  developed  country with a low average  has  industrialized capitalist  of  better  not  capitalist  would  countries.  for the improvement of  housing.  occurred.  countries,  establishment,  than  societies could accumulate enough wealth  living standard including the  anticipated  countries,  Unfortunately,  Now  Hungary was  it  is  and  this  clear  still  is  level of wealth and limited resources.  that  a  less  Based on  this fact, it may be argued that it was inappropriate in the first place for the  state to  assume  all  citizens.  priority on  housing  Even  full  responsibility  assuming  that  the  construction  from the  questionable  whether  sector  for  providing adequate  state  very there  had placed  its  beginning of its was  and  national  efforts  decent  investment  to develop  ever enough national income  to provide good housing for all.  housing  a socialist  to allocate  society,  to  the  it  is  housing  Therefore, it seems natural to ask why housing  is not treated as a commodity under socialist  economy.  Housing never entirely lost its market character in Hungary. in Szelenyi's  for  This is  manifested  observation:  Capitalist production and marketing of housing ceased. People could still buy, sell, or exchange their own private houses; they could barter house for house with the state distributors of housing; in some conditions they could buy new housing from the state builders; and they could co-operate and barter with one another to build houses for themselves (1983, p.28). In  addition  to  the  state's  dominant  role  in  the  housing  sector,  an  informal  housing  market has continued to exist, in which housing is rented or sold at market prices or even at speculative a  prices because demand always exceeds supply.  laissez-faire attitude  adequate "black"  toward this phenomenon since  public housing for all urban inhabitants market.  co-operatively  and  No  statistics  privately  show  financed  how  so  many  housing,  it has as  The state has  never been  to eliminate  able to provide  the  informal transactions,  are  realized  each  taken  year.  need  for  this  including both But  it  is  28 reasonable to believe that the co-operatively and privately financed housing construction has played a significant role in the housing sector.  This is because the state was able  to subsidize less than half of the total housing stock built annually.  The highest  percentage of the state built housing units out of the total housing units in the country was 41.1 percent in 1970 (Morton 1979, p.316). It is important to recognize  the  actual role of the informal housing sector.  However, this does not necessarily justify the argument that the state should have treated housing as a commodity from the beginning of socialist development.  Both the  housing redistribution at the beginning of the socialist country to make maximum use of surplus accommodation and the repression of the market mechanism to avoid sharp housing price competition had to a great extent relieved severe housing problems and eased the social injustice of the earlier years.  It is important to note that societies  where housing is treated as a pure commodity are also characterized by various housing problems.  Therefore, it would be equally inappropriate if the state had left the housing  sector entirely to market mechanisms. The continuing existence of the  informal housing sector  and its  role as an  important supplement to the state housing sector point to the possibility of treating housing as a commodity. of housing.  Socialism is not morally incompatible with market distribution  In fact, a state agency, the National Saving Bank (NSB), has already  operated in the housing market, building apartments for sale to individuals. uses the population's savings  to build houses.  The NSB  Housing built by the NSB, mostly  high-rise flats with inadequate landscaping and parking, hardly differs in physical terms from those built by the state.  The difference is mainly in the financial regulation  under which these flats are sold.  Families who buy the flats pay much more of their  income  state  than  those  live  in  the  built  housing  units  (Sillince  1985,  p.310).  Unfortunately, in the sector where the NSB operates the market functions badly because the NSB uses its monopoly of particular types of construction to maintain a seller's  29 market (Szelenyi 1983, p.90). It is widely believed that for the state to neglect the informal housing market further would be an unwise decision.  What is important and should be explored in  depth is how a policy of viewing housing as a commodity could help provide more and better quality housing for all people.  Moreover, to what extent such a policy should be  implemented under a socialist economy so as to avoid new housing problems created by market mechanisms.  3.2.3. Roles of the State Economic difficulties  and tenacious  urban housing problems have  re-examination of the role of the state in Hungary.  triggered a  By the end of the 1970s, the  government realized that it was impossible to solve increasingly urgent urban housing problems by depending exclusively on national budgetary resources. finance had to be found to expedite residential construction. 1980s,  the  government  was  prepared to  revise  its  Other sources of  By the beginning of the  housing  policy  in  order to  acknowledge the role of the informal housing market and to urge individual efforts in resolving housing problems. Laszlo Ballai, head of the Economic Policy Department of the Central Committee of the Hungarian Socialist Worker's Party, indicated the nature of the changes in government's housing policy in an October 2, 1982 speech: ... the conditions and circumstances of the national economy for realizing our housing policy aims have been changed ... the deteriorating foreign economic conditions have reduced the central resources devoted to housing activities and maintenance. This, however, means that we will be forced to rely on the material strength and work of the population, to a greater extent than before, in the future (Tosics 1987, p.63). His speech suggests that the state would work together with individuals to prevent a further stagnation in residential construction and the resolution of housing problems.  30 3.2.4. Equality vs. Inequality It  is  evident  that,  like  market  mechanisms  in  capitalist  countries,  administrative allocation of housing in Hungary also creates housing inequalities. examination  of the  history  of public statements and policy directives  the The  in Hungary  indicates clearly that that the occurrence of inequalities in housing allocation are not the official purpose of the state housing policy.  One of the primary official purposes of  housing policy is to reduce housing inequalities as much as possible.  By redistributing  the existing housing stock at the beginning of socialist Hungary, the state intended to eradicate social inequalities in housing inherited from the previous society.  Furthermore,  by assuming a fundamental responsibility for housing provision, the state intended to ensure that every citizen had equal access to state built houses. intentions  However, these good  did not automatically guarantee that the outcome of housing policy would  create equality.  Housing equality could only be achieved by constantly constructing  sufficient housing to satisfy basic demand and by allocating available houses to people according to their needs.  Unfortunately, both of the conditions have never been met.  As noted earlier, the economic policy in Hungary deliberately favored industrial development  rather  than  residential  construction.  To allocate  resources  to housing  seemed, to those policy makers, "like eating the original egg before it had hatched the magic goose that would one day lay the golden eggs" (Szelenyi 1983, P.30). result, sufficient capital has never been allocated to residential construction.  As a  Year after  year, the deficit of dwelling units accumulated. Under conditions  in which need was always much greater than supply, the  criteria for housing allocation become  crucial.  In addition, wages in Hungary are  officially set to exclude the cost of housing as well as a variety of other goods and services.  Thus, housing and other goods and services must be administratively allocated  to all people, including those with high incomes.  Because  housing happens to be  scarce, with only a small fraction of units available for allocation annually, the available  31 units are most likely to be allocated to the most meritorious citizens essential jobs, who tend to be those with highest incomes.  in the most  As Szelenyi asks, "How  could the state say to its rising managers and bureaucrats, 'If you get promoted you will reduce your housing chances?"'(author's emphasis; 1983, p. 10).  Moreover, since the  costs of housing are not passed through personal incomes, even the highest income groups will not willingly pay real costs or high rents for their housing. through the state's housing delivery system,  the better-off  available good quality housing at low rents.  Consequently,  groups get most of the  Many citizens with unfavorable social  positions, especially those with low incomes, have remote prospects for obtaining state housing.  In view of the long waiting time for a state housing unit, many actually do  not seriously expect that the state will provide them with a house.  Behind this  inequality in access to the state's housing units, there exists another aspect of housing inequality.  Rents are set low and the same for all.  In practice, the policy of low  rents and high subsidies are enjoyed only by those who already have adequate housing and who have been lucky enough to be allocated a state housing unit. From the above analysis, it can be seen that the socialist mechanism of the urban economy has created housing inequalities.  The government certainly does not  want to see any further inequities in housing distribution.  In view of the scale and  severity of housing problems and the limited national financial resources, the government realizes reformed.  that  housing policy has  to be changed  and the  housing  delivery system  Also, the state needs to tap the financial resources of individual households  in order to improve overall housing conditions in a shorter time.  Housing units are so  expensive, durable, comparatively indivisible, and fixed in particular neighborhoods that equality is harder to achieve  in housing than in any other sphere of distribution.  Nevertheless, Hungary is determined to do something about this situation.  32 3.2.5. Social Politicians vs. Reform Economists In the period of preparation for housing policy changes, great publicity was given to papers dealing with urban housing problems. sharply  polarized.  One of them,  which was  In this vehement debate, views were commonly referred to as  the  "social politicians", concentrated on the dangers of aggravating social problems. to reduce existing  view of In order  housing inequalities, they believed that "administrative adjustment in  allocation, emphasizing some objective 'social need' (family size, current housing situation) could  correct  would  play  the in  shortcomings  the  overall  together with  delivery  the  system"  expanding role that  (Baross  1985,  p. 13).  public housing This  proposition  seemed to suggest no radical institutional changes.  The  other  view,  which  was  promoted  by  "reform economists",  benefits of a further increase in the role of the market. operation of the public housing subsystem  stressed  the  They argued that "it is the  itself which is at the root of problem and  needs to be largely dismantled, not only in the sphere of allocation but in the sphere of production as  well"  consumption of the  (Baross  1985,  p. 13).  public housing strategy  In  strangles  their  view,  the  financial  the overall efficiency  production and is responsible for the social inequality in housing in two ways. retards housing production and hence increases queue.  resource  of housing First, it  the number of families in the housing  Second, it creates competition for subsidized dwellings, a competition which has  historically been  won by those citizens  with higher social status who have privileged  access to bureaucratic distribution channels, rather than those who need better dwellings. Thus,  they  construction  propose  that  the  role  should be expanded.  of the Their  housing  program is  market in housing to  "dismantle  allocation and  current limitations  which obstruct the realization of the housing good as a marketable commodity" (Baross 1985, p. 15).  This debate finally instigated the government's decision to change housing policy. The government  tended  to favour the  view  of "reform economists".  Their proposals  33 were partially adopted in the new housing policy.  3.3. Housing Policy Re-orientation and Justification  3.3.1. Housing Policy Re-orientation in 1982 A mixed housing economy.  The main aim of housing policy re-orientation in  Hungary has been to reduce the housing shortage and to alleviate the extent of housing inequalities.  In Szelenyi's point of view, neither market mechanisms nor administrative  mechanisms of distribution alone would solve Hungary's housing problems. that, in Hungarian circumstances, it is necessary  to make the housing sector more  market-oriented by adopting some extension of market methods.  That is to say, a  mixed housing economy which combines market and non-market methods introduced in order to achieve the main housing goals. many  other  reform  economists,  was  eventually  He suggests  Szelenyi's  acknowledged  by  should be  view, shared by the  Hungarian  government. In 1982, Hungary's government decided to reduce direct state control of housing and to increase the role of the housing market.  It was believed that the "strongly  subsidized public housing program blocks private initiative and fails to incorporate a significant share of private savings into the housing sector" (Baross 1985, p. 14).  Thus,  in view of budget difficulties, the state started to reduce its contribution to housing finance (Tosics 1987, p.62).  A portion of the most subsidized housing forms came to  an end, and the proportion for construction of rented dwellings was greatly reduced. The housing cost burden of the population was generally increased. The  remaining state  financial support for  house building and buying were  practically equalized among various housing classes and producers; grants and subsidy assistance were directed towards families in need, rather than the housing objects.  The  major criterion for allocating subsidies to families was family size (Tosics 1987, P.63).  34 In addition, factories and institutions could utilize their profit to support their employees with  housing  loans  or collective  building projects.  Ultimately,  the  role of direct  distribution and financing by the state decreased in every respect. Rental reform. policy  A new rental policy is the most important part of the housing  re-orientation.  Previously,  rent  increases  had  been  slow  and  rents  were  traditionally around 4 percent of personal income, very low by Western standards. Rent increases started in 1970 and stayed unchanged after 1972. decided to continue the rent reform.  From June 1983, rents would increase by 120  percent over a 5-year period (Sillince 1985b, p. 143). service,  quality, age,  In 1983, the state  The rent rises took size, level of  and location of housing stock into account.  From  1983  the  maintenance cost of all newly constructed or renovated buildings would be passed on to renters,  who  might  maintenance work.  form  "residents  co-operatives"  made  available  manage  the  renovation and  Besides the modest rent rises over years, there were measures  instituted by the state to help the poor. was  to  only to  the  very  For instance, the most subsidized housing poorest  groups; large  families  were given  privileged access to state subsidized housing units; and in case of rented housing, rebates were available depending on incomes and number of children. Recognition  of  Private  Residential  Construction.  Private  residential  construction has long been an element in Hungary's urban housing sector, but it has virtually been ignored by the government. private  house construction sector  official  The housing policy re-orientation gave the recognition because the  government finally  admitted that the role of the private housing sector in Hungary had been seriously underestimated.  The new housing policy gave private residential construction practically  the same conditions as other forms of housing construction for receiving assistance from the state (Tosics 1987, p.64).  Individuals were urged to utilize their own savings and  the state's loans to build houses of their own or to buy houses from the private housing market so that they could withdraw from the long waiting list for state  35 housing.  3.3.2. Housing Policy Justification Insufficient  national resources  and tapping the  population's  savings.  One  important feature about Hungary which should be kept in mind is that Hungary is still not a wealthy country compared with many highly developed capitalist countries.  The  country possesses only limited resources which are not sufficient to support a high rate of  development  in both  industrialization and residential  construction.  The housing  shortage can be solved only by committing sufficient resources to residential construction. However, the construction of the required number of housing units and the maintenance of the existing stock require too much funds, labor and materials for the state to be able to ensure a satisfactory improvement of the housing situation.  Even though the  state is now willing to allocate more resources to the housing sector, it still needs to seek additional resources  in order to  aggregate  a  significant  amount for housing  investment. For this reason, Hungary decided to tap the population's savings, offering in return the possibility of obtaining a housing unit in a shorter period of time. addition  to  aggregating  more  funds  for  residential  construction,  there  advantages to involving urban households financially in residential construction.  are  In other  First, it  can help relieve pressure on the government as the main source of housing investment. Second, it can reduce available consumer spending power that would have been used to shop for goods in short supply. Better housing for all.  Under the new housing policy setting, higher income  groups are provided opportunities to obtain better housing if they are willing to pay more.  It is believed that with little help from the state, these better-off households  should be able to obtain their own better-than-average housing from the housing market or purchase the better quality housing built by the state for sale.  It is also believed  36 that the growing prosperity of society as a whole and the increase of individuals' living standard should make it possible for the majority of the people to afford using a significant portion of their savings to obtain their own houses.  Therefore, the housing  resources which pass through the national budget should then be directed to assuring that housing of a necessary standard is available to all who still lack it.  To be more  specific, the housing resources, especially those that convey elements of subsidy, should be directed to the social groups who need them most.  With the better-off population  groups being taken care of mainly by the housing market, the state should be able to devote its major effort to helping the disadvantaged social groups improve their housing conditions.  After all, the socialist state attempts to enable all population groups to  improve their housing conditions. Housing as an award. equality  must  exceeds  supply  distribution.  guide  Supposedly, housing policy based on the principle of  housing distribution according to need.  so  overwhelmingly,  it  is  hardly  practicable  to  assure  impartial  Good housing is regarded as an important material incentive and as a  means of manipulating the deployment of manpower resources. has  However, when need  implicitly used  Hungary's government  housing to reward those "more important" workers in society.  During the 1960s, the average value of the highly subsidized state housing of high quality was eight times the average annual income (Sillince 1985b, p.305).  Therefore,  there was a large difference between the lucky person who did receive it and the person who did not.  The best and most  allocated to the highest occupational groups.  subsidized housing was administratively Since the society already rewarded its  "more useful" members with relatively higher incomes,  the housing reward further  increased their real incomes. The new  housing policy urges  savings to obtain better houses. socialist  the better-off  population groups to use their  This is "justified on the ideological ground that the  society rewards the labour contribution of their workers at the sphere of  37 production (workplace)" (Baross 1985, p. 15).  Thus, it avoids those better-off members  of the society receiving dual rewards (housing and incomes).  By introducing parts of  the market mechanism into the socialist housing sector, it is hoped that the previous pattern of partly and wholly concealed benefits  such as housing subsidies be brought  into the open and incorporated plainly into a visible distribution of income.  In Baross'  words, the  a greater  possibility  state that  intends  families'  to  "develop  housing  a  housing policy which provides  situations  reflect  the  usefulness  of  their labour  contribution to the society" (1985, p. 15). Promoting home ownership.  Home ownership in Hungary is more a rural  than an urban phenomenon: only 33.6 percent of those in Budapest own their own home, whereas the proportion for the towns is 63.5 percent and for the villages 91.5 percent (Sillince 1985b, p.309).  The government envisages promoting home ownership  as a potential solution of urban housing problems. wake  of  the  economic  recession  and other  social  Since the mid of 1970s, in the problems,  the  government  has  attempted to attract private investment in housing in the form of greater incentives for home ownership.  This attempt was further emphasized in the housing policy changes  in the early 1980s.  In fact, to encourage individuals to solve their housing problems  without recourse to state built housing units by becoming owner occupiers is the most important aim of the housing policy reform (Sillince 1985b, p. 309). There are three ways of achieving private home ownership: first, building a house oneself without the help of a "self-build group".  4  ownership is acquired in this way.  About 15 percent of home  In this case, often family members and neighbors  do nearly all the work with the inexpensive supervision of a private builder or civil engineer. companies.  This has become possible (or legal) since the relaxation of controls on private Second, joining a "self-build group"; about 38 percent of home ownership is  acquired in this way.  This kind of dwelling is cheaper than ready-built ones and offer  * A "self-build group" appears to be a small housing construction group which assists individuals in the building of their house.  38 greater choice, but take longer to be completed (average  time is four years).  Third,  buying a ready-built dwelling; about 47 percent of home ownerships are acquired in this way.  Two third of dwellings for sale are financed by the National Savings Bank, and  one third are built by the state to sell.  Buying a ready-built dwelling is slower than  building it yourself (Sillince 1985b, p.310).  3.4. Consequences of the Housing Policy Reform There is little literature on the effect of the early 1980s housing policy changes. Nevertheless,  by putting bits and pieces of information together,  some consequences of  the housing policy reforms can be noted.  3.4.1. Reduction of Housing Inequalities The  measures  taken  in  financial burdens on different  1983  have  led  to a reduction of inequalities  social groups and in the differences  conditions attached to the different methods of acquiring a dwelling. the  heavily  subsidized  been reduced. various  forms  state housing occupied by the better-off  The disadvantaged of subsidies  in the  between the  cash  Also, the share of  population groups  has  social groups have been given priority in allocating  from the  state.  The  state  subsidies,  which  have  been  reduced in volume, are more evenly distributed among the different housing forms.  3.4.2. Growth of the Market Mechanisms The new housing policy introduced in 1983 has resulted in an expansion of the market mechanism.  At the same time, the direct distribution of housing by the state  has  In the  been  reduced.  private market sector,  the  size and quality of  depend more and more on the financial capacity of the households.  dwellings  39 3.4.3. Preventing Reduction in House Building  An essential  achievement  of the Hungarian housing policy reform is that, in  addition to the above mentioned reduction of housing inequalities, the new housing policy succeeded in preventing a drastic reduction in house building as more of the population than  before  have  been  drawn  into  the  financing  of  residential  construction.  Consequently, the housing industry has maintained its momentum despite the country's economic difficulties.  3.4.4. More Choices and Aesthetic Improvement  As a result of the strengthening  of the private housing market, freedom of  housing choice has become much greater than before. better-off population groups.  This is especially true for the  As many better-off families obtain better quality houses,  more of their previously occupied housing units are filtered down to other social groups. Moreover, the reform has increased the freedom of choice of families interested in an exchange of dwellings.  As to the aesthetic aspects of housing, the increase in the  number of private housing construction organizations active in the housing sector, has resulted in a move away from monotonous styles of building.  3.4.5. Decrease of Subsidized Housing Production  Because of difficult economic conditions, the state has reduced its contribution to residential construction, diverting funds to other economic sectors. drop in the absolute number of state built dwellings.  This led to a steep  The rate of state built, housing  plummeted from an average of 30 percent during the previous three decades to 12 percent  (Hegedus  1988,  p.l).  Thus,  there  are less state subsidized housing units  available for allocating to those in need of houses.  40 3.4.6. Housing Polarization Despite the reduction of housing inequalities in terms of financial burdens on different social groups, inequalities in housing consumption has not been reduced but increased to some extent. to obtain dwellings.  It tends to be even more difficult than before for the poor  This is because the state has reduced its housing investment and  because the price of house building is rising at a rate never experienced before (Tosics 1987, p.71). prices  As a result, most of them can not afford housing units sold at market  and only a small proportion of them receive  the  state's subsidies.  Thus,  differences of housing conditions between the better-off and the poor become even more distinctive.  3.5. Major Concerns Regarding the New Housing Policy The transform  introduction housing  of  a  more  construction  and  market-oriented  housing  provision  a  into  more  policy  has  helped  economical  to  operation.  However, the emphasis on. the market approach and the reduction of the state financial commitment have left low income groups with even less opportunities to improve their housing conditions.  In view of the increase of inequalities in housing consumption and  the steep reduction of the state built housing, concerns regarding the new housing policy are now being voiced by many housing experts.  Hegedus argues that "The only way  a new housing reform will be successful is if it is combined with an effective social welfare  policy" (1983,  p.492).  The more  extensive  the  reliance  on  the  market  approach, the more necessary it is to provide subsidized housing to the low income groups. Can Hungary succeed in providing each household with a modern self-contained unit by 1990 as promised?  Compared to other Eastern European socialist countries,  Hungary appears to have greater potential to realize this goal.  However, if economic  conditions force the government to reduce overall capital outlays, it seems likely that  41 the housing sector will be among those sectors that suffer most.  If so, then the  housing shortage will very likely persist beyond 1990. Clearly, many aspects of urban housing problems, housing policy change and the detailed procedures for policy implementation in Hungary which have been discussed in this paper require further clarification. experience  in dealing with urban housing problems and in formulating new housing  policies is certainly sufficient study.  However, this initial examination of Hungary's  and useful for the purpose of a comparative housing  The next two chapters examine China's urban housing problems and housing  policy changes.  42  CHAPTER 4. URBAN HOUSING POLICY, HOUSING DELIVERY SYSTEM AND PROBLEMS IN CHINA  Since 1979 China has introduced economic reforms, first in the rural sector and later  in  initiated  the new  construction. construction. yuan,  5  urban  economy.  policies The  and  year  In  the  programs  1979  housing to  was  a  sector,  increase turning  the  Chinese  housing  finance  point  for  housing  government and  has  residential  investment  and  From 1979 to 1984, the total investment in housing reached 70.1 billion  equalling 65.5 percent of the total housing investment  from 1949 to 1984.  over the 35-year period  Moreover, the completed housing floor space in the six years was  472.4 million square meters, 47.5 percent of the total over the previous 35 years (Lin 1986a).  Despite  these notable achievements,  urban housing problems' such as housing  shortages, unequal distribution and corruption remain unresolved and have become issues of great concern to China's urban residents.  In view of this, the government recognizes  that further major reforms in housing policy, finance and management are imperative. Thus, a far-reaching debate on the theory and practice of government housing policy began in the mid-1980s.  This was  followed by radical  focus of which relates to housing commercialization. housing policy changes,  it is necessary  outline the socio-economic  context  housing policy changes,  the  In order to analyze these urban  to review housing development  in China and  within which housing policies operate.  This chapter  presents an overview of urban housing policy, the housing delivery system and current housing problems in China.  In 1987, the official rate of exchange was US $1 = 3.7 yuan (China's monetary unit; People's Daily). It was lower at early periods. 5  43  4.1. Indices Relevant to Housing Development  4.1.1. Demographic Changes  In p.816).  1986 China's It is estimated  the  end of 1988, which  and  Mail  Table 4).  1988).  population  is earlier  than  government  Since its founding, China  (Bureau  the 1,100 million mark by  statisticians  has witnessed  of the Census 1987,  rapid  predicted (The Globe population growth (see  size in urban areas has become smaller, decreasing from  per household  1985  Bureau  "one  million  that the total population will pass  5.30 persons (State  married  1,045.5  Recently, urban demographic change is characterized by three major features.  First, household  baby-boom  was  generation  couples.  in 1964 to an average  of Statistics have  reached  1986, p.667). marriageable  of 3.82 persons  an average of  per household in  Second, the children  of the 1960s  age, rapidly increasing  the number of  Third, because of the implementation  of the family planning policy of  couple one child", more three-person families are being formed.  These demographic  factors have jointly exerted great pressure on the urban housing supply.  Table 4.  Population Changes in China (1949-1985) (million)  Year  1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967. 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 Note:  Total Population  541.67 551.96 563.00 574.82 587.96 602.66 614.65 628.28 646.53 659.94 672.07 662.07 658.59 672.95 691.72 704.99 725.38 745.42 763.68 785.34 806.71 829.92 852.29 871.77 892.11 908.59 924.20 937.17 949.74 962.59 975.42 987.05 1,000.72 1,015.41 1,024.95 1,034.75 1,045.32  Urban Population  57.65 61.69 66.32 71.63 78.26 82.49 82.85 91.85 99.49 107.21 123.71 130.73 127.07 116.59 116.46 129.50 130.45 133.13 135.48 138.38 141.17 144.24 147.11 149.35 153.45 155.95 160.30 163.41 166.69 172.45 184.95 191.40 201.71 215.54 241.26 330.06 382.44  Percentage of urban Population 10.6 11.2 11.8 12.5 13.3 13.7 . 13.5 14.6 15.4 16.2 18.4 19.7 19.3 17.3 16.8 18.4 18.0 17.9 17.7 17.6 17.5 17.4 17.3 17.1 17.2 17.2 17.3 17.4 17.6 17.9 19.0 19.4 20.2 20.8 23.5 31.9 36.6  I n t h i s t a b l e , urban p o p u l a t i o n i n c l u d e s a l l p o p u l a t i o n l i v i n g w i t h i n a c i t y o r t o w n ' s b o u n d a r y . The sharp i n c r e a s e o f u r b a n p o p u l a t i o n i n 1984 was d u e t o t h e e s t a b l i s h m e n t o f a l a r g e number o f new c i t i e s a n d t o w n s . S o u r c e : S t a t e Bureau o f S t a t i s t i c s , C h i n a ' s S t a t i s t i c a l Yearbook, 1986, p . 9 1 .  45  4.1.2. Urbanization The the  late  world  process 1970s.  of urbanization in China The proportion  6  rose from  28.2 percent  of 0.39 percent  annually  was very  of the urban  slow from  population  the late  to total  1950s until  population  in the  in 1950 to 40 percent in 1980, increasing by an average  (Zhou 1987, p. 16).  During  the same period, the proportion of  China's urban population rose from  11.2 percent to 19.4 percent, an average increase of  only  Of this  0.27 percent (see 7  two-thirds population government  Table  4).  urban  population  (Zhou  1987, p. 17).  adopted  agricultural  areas.  It was  not until  an "open door policy"  the early  and introduced  productivity and the concomitant  1980s, after  of rural  the Chinese  rural economic reforms,  that  This is mainly due to an increase  migration  of rural  population  existing  established.  cities  According  and towns  expanded  to the data  issued  and a large by  number  the State  Bureau  urban population in China reached 382.4 million in 1985, accounting the total population than  about  to urban  In addition, as a result of the rapid development of the urban economy and  culture, many were  in China,  is attributed to natural growth and only one third to the migration  China's urban population started to increase rapidly. in  increase  the average  of new  ones  of Statistics,  for 36.6 percent of  Although the percentage of urban population in China is still lower  8  percentage  important  to  bear  amounting  for about  in mind one-fifth  of urban that  population  China  of the total  has world  of the world  an  extremely  population.  as a  whole,  large  population  Thus,  the total  it  base urban  According to figures collected by Chan (1985, p.597), the urban population in China was 10.6 percent of the total population in 1949 and 19.8 percent in 1960. The urban population doubled in the first decade of the People's Republic of China. Since the late 1950s, the percentage of urban population had stayed relatively unchanged. By 1982, China's urban population amounted to 20.6 percent of the total. 6  Due to a lack of standardized method of calculating urban population before the 1980s, many scholars estimated a much lower percentage of urban population. For instance, Zhou (1987) believes that the proportion of China's urban population rose from 9.05 percent in 1950 to 13.65 percent in 1980, increasing by an annual average of 0.15 percent. 7  This figure is believed by some to be an over-estimate because the state's statistics include all people who reside within a boundary of a city as urban population (Chan 1985, pp.585-589). 8  is  46  population nearly  for  fifteen  tremendous housing  which the times the  Chinese total  government  has  tried to  population of Canada  in  growth of China's urban population has  provide adequate  1987.  It is  a significant  housing  apparent that  is the  influence  on the urban  However,  because  sector.  4.1.3. National Wealth  China's  economy  had  rather  China  constantly  a  has  poor  experienced  expanded foundation  political  to  world.  By  higher than India's  1986,  still  state,  a  priority  country  "socialist"  in national  1949.  and,  and  in particular, because  upheavals, areas  the  coexisting  capita G N P was  capital  capita G N P of the with  very  development allocation  limited  models to  the  country  US  (notably  the  which  was  Third World  and  USSR),  industrial sectors,  still  with vast areas  $300,  wealth  has  is  which  that  lowest slightly  countries',  industrial market economies.  national  New  it  capita G D P still ranks among the  ($290), considerably higher than bulk of the  developing  following  with  Its per  China's per  but only a fraction of the per is  since  well developed  are underdeveloped and impoverished. the  start  campaigns  characterized by some economically  in  enormously  China  9  resources.  has is  The  always  given  considered  the  major approach to the accumulation of national wealth.  4.2. Housing Policy and Housing Finance  In  1979  the  Chinese government  attempt  at resolving housing problems.  housing  sector  policy, finance  since  1979,  it  is  sincerely  started  to  commit itself  a  serious  Before examining what has happened to China's  essential  to  have  a  good  understanding  of  housing  and the delivery systems which operated over the previous thirty years.  Data can be found in World Bank, World Development Report: 1988, Oxford University Press, 1988, pp.222-223. 9  to  New York:  47 4.2.1. Housing as a Public Good and the State's Role When  the  People's  Communist government  Republic  of  China  was  established  in  1949,  the  new  immediately adopted the Soviet Union's housing system model.  The fundamental principle of this model was that housing was considered a public good rather than a commodity.  In theory, regardless of social status, personal contributions  to society or income, every citizen was entitled to state built housing.  The government  believed that housing should be treated as a welfare provision in order to achieve the goal of housing egalitarianism, which implied equal access to state built housing.  This  housing goal is in line with the objective of establishing an egalitarian socialist country.  The management  state  has  been  responsible  of all state owned housing.  housing construction and management those government agencies. the  solid-lined  arrows  for  construction,  These functions  agencies.  over  housing  maintenance  and  were performed by various  Figure 1 indicates relationships among  The dash-lined arrows show a relationship of leadership and  a relationship  of consultation.  owned housing is under the management of work units. control  allocation,  management  is  different ways of managing housing.  More 1 0  rather loose because  than  two-thirds  of state  Thus, in reality, the state's different  work units  have  Moreover, because the state has emphasized the  promotion of nationalized building enterprises, private construction of housing is restricted in urban areas.  Refer to page 3 for a detail explanation of this term.  severely  Figure 1. Housing Management System in China  The  State  Council  M i n i s t r y of Construction  Housing Bureau o f the M i n i s t r y  1  Work U n i t s Housing Management Departments  Provincial £ Large M u n i c i p a l * Governments  1  r." i i  Provincial & Large Municipal Construction Departments  Municipal Housing Management Bureaus  m  X  District Housing Management Bureaus  T Neighborhood Housing Management Groups  T h i s i n c l u d e s t h r e e l a r g e m u n i c i p a l i t i e s d i r e c t l y under the c e n t r a l government: B e i j i n g , Shanghai, and T i a n j i n . Source: Based on J . Wang, "Urban Housing C o n s t r u c t i o n and Management"(in C h i n e s e ) , 1987, p.154.  49 4.2.2. Housing Finance  Sources  of  housing  investment.  Unlike  most  developed  countries  where  household savings are the predominant source of funds for housing construction, urban housing development in China is financed primarily by the state as part of its capital construction budget. China.  Figure 2 summarizes various sources of housing investment in  On average, prior to  1980,  annual housing funds allocated from the state  capital construction budget amounted for 89.9 percent of all housing investment (Ke 1987, p.3). Housing -- a "non-productive" sector.  Marxist and neo-Marxist theory does  not provide explicit ideas on how the socialist economy and the housing sector are to be reconciled (Pugh 1986, p.88). China  prior  to  1979.  Housing was not a primary investment priority in  Housing expenditure  was  classified  as  consumption of national income and as a "non-productive" sector.  unprofitable  --  as  In contrast, it was  firmly believed that the advance of socialist industrialization was the most important task of economic planning.  Thus, for a long period of time, only a very small  percentage of national wealth was allocated to residential construction.  Table 5 indicates  that annual growth rates of state housing investment frequently fluctuated and from 1954 to 1978 the state had never invested more than 10 percent of its capital in housing.  50  Figure 2.  Schematic Illustration of Sources of Housing Investment in China  Central Government Allocation State Budget Regional & Provincial Governemnt Allocation Investment in Capital Construction Local Government Funds  Departments Directly Under Central Government  State-owned Work U n i t s  Funds from Local Levels  Total Investment for Residential Construction  Renewal Funds from State-owned Work U n i t s  Funds from Collectively Owned Work U n i t s  Other Investment  Private Investment  Bank  Loan  Foreign Investment  Others  Source: Based  on J . Ke, "The G e n e r a l Housing Context i n China", 1987, p.3.  51 Table 5.  Year  1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 Source:  State  H o u s i n g Investment i n C h i n a (1950-1982)  Housing investment ( m i l l i o n yuan) 125 285 448 997 884 616 1274 1282 810 1347 1570 743 396 728 1116 943 877 496 521 1021 762 1370 1797 1985 2155 2294 2181 2506 3754 7379 11950 13300  Annual growth r a t e  Percentage of t o t a l c a p i t a l investment (%)  (%)  n/a 128.0 57.2 123.5 -15.3 -27.0 106.8 6.3 -36.8 66.3 16.6 -52.7 -46.7 83.8 53.3 -15.5 -7.0 -43.4 5.0 96.0 -25.4 79.8 31.2 10.5 8.6 6.5 -4.9 14.9 49.8 96.6 61.9 11.3  J . Ke, "The General Housing  Context  11.0 11.0 10.3 12.5 9.3 6.6 8.6 9.3 3.0 3.9 4.1 6.0 5.9 7.7 8.0 5.5 4.4 3.8 5.0 5.5 2.6 4.3 5.7 6.2 6.5 5.9 6.1 6.9 7.8 14.8 20.0 n/a i n China",  1987,  p.4.  According to a rough estimate made by Zhiqun Lin (1986b, p.43), Director of the Housing Bureau in China, the state's capital construction investment in housing projects in the years 1950 to 1978 was almost 37 billion yuan, which represent only 0.7 percent of the country's GDP during the same period.  As a result of this low  investment in housing, urban living conditions in the late 1970s had fallen to a level below those of the early years of the People's Republic.  52  4.3. Housing Delivery System  4.3.1.  Housing Redistribution at the Initial Stage of Socialism  With  the  problems  in  establishment  the  cities  were  of  the  People's  desperate.  Republic of  The  housing  China  stock  in  was  1949,  depleted  devastation of the Anti-Japanese War (1938-45) and the Civil War (1945-49). poverty was very extensive in cities.  For example,  slum areas were scattered all over the city.  housing by  the  Housing  in Shanghai, a large number of  As described by Pugh:  Rent burdens were high relative to income; typically over 24 people would live together in small houses, with four families per house; the houses would be partitioned into small cubicle spaces; and such diseases as typhus, cholera and tuberculosis afflicted the population. Opium dens and beggars added to the dismal urban social environment (1986, p.91). On the other hand, there were the bourgeoisie and the better-off social groups enjoying their vast and luxurious villas. Thus, in order to eliminate and  to  alleviate  the  urgency  of  the social injustices the  housing  inherited from the old society  problem,  the  Communist  government  confiscated houses of those defined as the exploiting classes and transferred the majority of privately-owned urban housing into public ownership.  1  private  rental  housing,  with  a  requirement  for  1  Controls were introduced on  registration  of  property.  Former  landlords and owners of private housing were allowed to maintain a certain amount of living space for their own use based on the size of the family, which was usually less than 100 square meters (Laurence 1981).  By doing so, the government was then able  to redistribute all surplus houses among the needy social groups. required to pay only a negligible amount in rent.  The recipients were  This low rent approach ensured that  all social groups were able to afford houses.  The amount of housing transferred varied from one city to another. For Guangzhou, see Guangzhou Nianjian BianZhuan Weiyuan Hui (compiler), Guangzhou Nianjian 1987 (Guangzhou Yearbook: 1987), Guangzhou: Guangzhou Wenhua Chuban She, 1987. 1  1  53  The process of housing redistribution was a significant success.  The urban slum  were  the  areas  cleared.  dramatically  Public  improved.  health  and  living  Moreover, through this  standards  process,  among  the  basic  poor  were  framework of  the  housing system in Socialist China was established.  4.3.2. The State's Dominant Role in Housing Distribution  The  process  of housing  redistribution led to  dominant role in housing distribution. Housing terms  Administration to manage  of  housing  investment,  the  the  establishment  of the  state's  Administratively, each city set up a Bureau of  housing  and to  develop  central  government  national capital to be allocated to the housing sector. rent levels were controlled solely by the state.  new  public housing.  determined  the  In  proportion of  Moreover, housing allocation and  As such, the  state assumed  general  responsibility for meeting housing needs of all urban citizens.  4.3.3. Housing Tenure Housing housing  tenure  owned  and management  and managed  collectively-owned  work  by  units;  work  can  be  units,  categorized  into  three  including state-owned  municipally-owned  housing  under  major  work  the  types:  units  management  and of  municipal housing bureaus; and private housing. The  vast  majority  of  the  housing  stock  is  owned  and  managed  by  the  state-owned work units.  This type of housing is supported entirely by the government  and  comes  housing  Eighty 1986,  three  investment percent  of the  directly  from  the  government's  state's housing investment  goes  to  planning this  department.  sector (Carlson  p.24), which became the major thrust of new housing development; whereas the  collectively-owned work units receive much less funding for housing construction from the government.  Consequently, urban residents who work in state-owned work units obtain  substantially  more  subsidies  for  housing  from, the  state  than  those  who  work in  54 collectively-owned work units. Municipally-owned housing mainly serves the needs of the relatively few senior citizens who have never had a job and of those working in the private economic sector. These  individuals must  apply to the  municipal housing bureau for accommodation.  Enterprises and other work units, which usually are of relatively small scale and unable to build their own housing, also refer their employees to the municipal housing bureau. This type of municipally-run housing still plays an important role in housing supply. The third type of housing, private housing, is difficult to assess.  Different cities  have different proportions of private housing within their total housing stock. private housing constitutes only a small percentage  Generally,  of the total housing stock.  For  instance, in the city of Xian, 10 percent of the overall housing belongs to the private sector (Hall 1988, p. 124).  4.3.4. Rental System Low official rents and high state subsidies has been the primary approach to the provision and maintenance of housing in urban areas in China. a showpiece of socialist countries. 1949.  This  was  established  This model used to be  Rents have been maintained artificially low since  in accordance  with  China's low  wage and low-price  systems, which are believed to have played a positive role in ensuring everyone the basic necessities of life another; but they income.  (Ye 1988,  p.33).  Levels of rents vary from one city to  seldom amount to more than 10 percent of a family's monthly  A 1980 survey of Wuhan city reveals that an average household paid only  2.3 percent of monthly income for its housing (Carlson 1986). total  rents  per month average  (Friedman 1983).  from 6 to  10  percent  In the city of Tianjin,  of family  monthly income  According to a survey of 15 cities in 1982, the average rental  payment per month was 0.10 yuan (3 cents(US)) per square meter for public housing. Some  enterprises  charged only  0.04  yuan per square  meter  per month for their  55  employee's houses, which was too low to be of any significance  (Zhang 1986, p. 11).  As one popular Chinese saying goes: "Monthly rents equal only the cost of a packet of cigarettes" (yi yue fang zu, yi bao yan qian).  Returns from rental payment are not enough to cover maintenance costs not to mention depreciation, management and construction costs. housing are highly subsidized by the state or work units.  Therefore, all public owned But most housing offices  find it difficult to obtain sufficient funds to keep up the existing housing stock.  4.4. Urban Housing Problems and Their Social Impact  Despite the adoption of such a radical socialist housing policy in China, some previous urban housing problems persisted.  In addition, there have been some new  housing problems, and their accompaning social impact.  4.4.1. Urban Housing Problems  Various surveys conducted recently in different circumstances in China indicate that the problem of greatest concern to people was housing.  A vast majority of  respondents to these surveys said they would tackle housing problems before anything else if they were "in the shoes of mayors".  Quoted by People's Daily on March 8,  one city dweller said "Trying to find an apartment to rent is harder than finding a spouse".  It is not surprising that housing is seen as a major problem by the majority  of urban inhabitants.  Five aspects of China's urban housing problem are summarized  as follows. Shortage.  The first national building survey of 39.77 million urban households  containing more than 150 million urban residents was completed in 1986. revealed  that  10.54 million households  identified as having a lack of essential  out of the total households living space.  This survey  surveyed were  This group represents 26.5  56 percent of the  total households  surveyed and includes households  who are homeless,  sharing or lacking basic amenities and overcrowded (Urban and Rural Construction 1987, p.24).  Overcrowding  is  extensive  in  most  shortage varies among different cities. severe the housing shortage.  cities.  But the  severity  of  the housing  Usually, the larger the size of a city the more  For example, in Shanghai, the largest city, the average  living space is less than two square meters per person (Sun, Jinlou 1984, p.79). not  uncommon to find that  unmarried  teenagers  (16  years  It is  old or over) and their  parents are not always able to have separate bedrooms.  Figure 3 contains a cartoon  which  large  depicts  a  family of four  living  Another common urban phenomenon is room before they get married. these unlucky young couples.  in one  room as  as  that thousands of couples  a king-sized bed. are waiting for a  Figure 4 satirizes the housing shortage problems facing  Figure 3 .  Urban Housing Situation in China (I)  Cartoon II. A  Source: Y.  family of four lives in one room as large as a king-sized bed.  Sun, China D a i l y ,  September 22, 1986.  58 Figure 4. Urban Housing Situation in China (II)  Cxi*-* T/vi-Y . [ul-jxvf . S.-f>r."J. i"('«t  Cartoon I.  Groom: "Welcome to my soon-to-be wed's house: my fridge, washing machine, color TV...."  Source: F.  Wang, China Daily,  September 2,  1986.  Table 6 indicates that per capita living space decreased in the first 30 years of socialism  in  China,  with  the  attributable to many factors  lowest  point  occurring in  1979.  decrease  such as the reduction in state housing investment,  rapid population growth and increasing urbanization. Table 6.  This  Changes of Per Capita Living Space in China's Cities (square meters)  Year  Beijing  1949 ' 1956 1979  4.29 3.02 2.81  Average for 192 cities 4.5 n/a 3.6  Source: C. Pugh, "Housing Policy and Theory" i n International Journal of Social Economics, V o l . 13, No. 4/5, 1986.  is the  59  Deterioration.  A great deal of the existing housing stock in cities is very old  and in urgent need of repair. and in danger of collapse.  Even worse, some dwellings are structurally unsound  However, most housing offices have neither the incentive  nor the financial ability to carry out repairs and maintenance. of housing dilapidation is accelerating.  As a result, the rate  In 1977 5.33 million square meters of housing  was in disrepair, while in 1980 it increased to 8 million square meters, and in 1982 to 13.11 million square meters.  Though a lot of these units have been demolished,  half of the urban housing stock remains in a poor state of repair (Zhang 1986, p. 11). In Beijing, for example, about 18 percent of the housing stock is rated as dilapidated. In Shanghai, about 10 percent of the living space is registered as being slum-like and a further 10 percent as dilapidated (Taubmann 1985). often.  House collapse happens very  During 1980-1982, 134 houses collapsed in Chongqing resulting in 30 casualties  (Zhang 1986, p. 11). Substandard housing. running water and sewage.  There are still many residents living in houses with no It is common to find two or three families sharing one  kitchen and bathroom.  Table 7 shows that a large percentage of urban households still  either share  washroom and running water  kitchens,  outlets or live in houses or  apartments without these basic facilities. Table  7. Survey on Housing Facilities in China's Cities (1986) (percentage of the t o t a l households  Facilities Kitchen Washroom Running Water Electricity  Self-contained  Shared  63 24 57 96  6.5 10 16  surveyed)  Deficient 30.5 66 27 4  Source: Based on "A B r i e f Report on t h e F i r s t N a t i o n a l B u i l d i n g Survey" i n Urban and R u r a l C o n s t r u c t i o n ( i n C h i n e s e ) , 1987, No. 1, B e i j i n g , p.24.  60  According  to personal  garrets and attics. with  observation,  In Beijing, many  in Shanghai,  many  house in Beijing,  however, much of this type of housing  still  live in  patios of traditional courtyard houses are crowded  self-built, low quality and structurally unsound shanties.  traditional courtyard  residents  Figure 5 shows a typical  which is full of amenities has become very  unpleasant  for living.  To date,  and unsanitary (see  Figure 6).  Figure 5.  A Traditional Courtyard Housing in Beijing  Source: D. L i u , H i s t o r y o f A r c h i t e c t u r e i n A n t i e n t  China,  1980, p.316.  61  Figure  6.  A  Source:  Visual architectural A  professionals, complain  of the  neighborhoods.  housing  and  identical  visual  five  or  six  A  8,  1987,  including  monotony  storey  common walk-up  Children sometimes get lost because  p.2.  urban  of newly  planning  built  processes.  The  building  investment.  material  Although  done to change the situation because  creativity and  urban  landscape  apartments  apartments.  is one  rigidly  and  endemic of  lined  row  up  in  they cannot identify their homes.  of visual monotony is mainly due  monopolized  insufficient housing  pressing.  residents,  distinguishable features.  problem  by  D a i l y , May  i n Beijing  of recently built houses follow the same pattern, without any  construction  constrained  X i a , People's  urban  of  The  Appearance of Courtyard H o u s i n g  Many  characteristics row  Q.  Monotony.  vast majority  after  New  of  to the state's monopoly over the Chinese  construction  the problem  architects companies  is as  largely well  is acknowledged, little has  other housing problems appear  to be  much  as  been more  62 Interior layouts of apartments are usually standardized and very rigid due to the standardized sizes of building materials.  Housing generally display no flexibility for  residents' own design input and lacks adaptability to changing life styles. Overloaded and outworn infrastructure. pace with housing development since 1949. Revolution (1966-76).  Urban infrastructure has not kept  It was totally neglected during the Cultural  As a result, the infrastructure in already built urban areas is  either overloaded or outworn.  Power failures and water cutoffs are regular occurrences.  Ironically, many houses cannot be occupied after completion because necessary services are not available and because infrastructure construction is often delayed.  4.4.2. Social Impact of the Housing Problems  Unequal  housing distribution.  Although statistics indicate that the average  living space per urban resident has increased significantly since 1979, the percentage of households  suffering from housing distress shows no sign of decline.  growing disparities in housing supply. built house. by the state.  This  signifies  In theory, every citizen has a right to a state  However, in reality, many citizens have not been properly taken care of For example, housing problems tend to be increasingly serious for those  who are self-employed, or who are not attached to any specific work units.  Another  example is that workers in state-owned work units always get greater housing funds from the state than those in collectively-owned work units regardless of their real needs. Inequality is also manifest in the implementation of the housing subsidization policy.  The more living space a family occupies the more housing subsidies it gets  from the state (Cheng, Zengze 1985, p. 32).  Since most families who enjoy better  housing are those with higher incomes such as cadres and managers, the effect of state housing subsidies actually widens income disparities.  63 Corruption in housing distribution.  The state has invested a lot in housing construction over the past three decades and more. But under the current system, some people abuse their positions and power to demand several apartments, while ordinary people frequently live in overcrowded conditions (Beijing Review 1988, p.8). Because  housing is  so  scarce  and because it is allocated administratively, housing  administration has become notorious for breeding nepotism and corruption.  One Chinese  contemporary saying goes: "Sons rely on their father's official positions for their houses" {erzi zhu fang yao kao laozi). houses but they also use housing.  Many cadres not only occupy comfortable and large  their power to help their children gain access to better  This is why there is such a strange urban phenomenon: on the one hand,  there are thousands of citizens on waiting lists for a house or apartment; on the other hand, many completed apartments remain unoccupied.  One investigation conducted in  Tianjin in 1986 revealed that 70 thousand habitable rooms were unoccupied (Liu, Xinxin 1987).  More shocking, it was found that some registered household heads were still  infants.  Relatives  and friends of many cadres can likely obtain houses sooner by  taking a "back door" approach (bribery or other illegal means). Citizen's resentment. residents conditions.  Many surveys indicate that a large number of urban  have been dissatisfied  with government housing policies  and with housing  Sources of the dissatisfaction include not only shortages and general living  conditions but also unequal opportunities to access state built houses and nepotism in housing distribution.  Stronger yet, most urban commoners resent the fact that some  Communist cadres live in much larger and more comfortable houses provided by the state and pay very little rent (Hu 1988).  In theory, Communist cadres should always  consider the public interest first and should never take advantage of their positions to enjoy more than the masses. practice.  Unfortunately, the theory does not measure up to the  Moreover, because of unfairness in housing distribution, hostility results among  the people involved such as fighting and quarreling with each other, committing suicide and  bringing matters  to  civil  courts  (Liu, Xinxin  1987).  Sometimes,  employees'  64 dissatisfaction industrial  with  housing  distribution  production processes.  In  even  recent  engenders  years,  the  sabotage  of  business  resentment  of  citizens  housing has attracted increasingly greater concern throughout Chinese society.  1  and about  2  4.5. New Housing Goal and Housing Policy Questions The Chinese government has established an ambitious housing goal to double the current average  4 square meters per capita living space to 8 square meters  year of 2000.  This means that each family will have one complete dwelling unit of  its  own, containing a kitchen and a toilet and meeting  requirements of its daily life (Zhang 1986, that this goal can be achieved.  p.6).  most  of the  basic physical  Many experts and scholars  However, it is no easy task.  by the  believe  Although the necessity  for more and better housing for all citizens is clearly recognized by the government, it is unreasonable  to expect that the  scarce  financial resources  when  resources  Modernizations", technology. state  badly  namely  an even greater  urban housing construction  needed  industry,  to  achieve  agriculture,  the  and rehabilitation  proclaimed  national  amount of its  goals  defense,  of  and  sector  the  "Four  science  and  In order to accomplish the ambitious housing goal, in view of the limited  financial  current  are  in the  state will invest  housing  resources situation,  available it  is  delivery, financing, management commonly agreed upon. reform approaches,  for  housing  essential  that  development the  existing  and  the  severity  of  housing  policies,  housing  and construction systems be reformed.  the  This notion is  However, in terms of the specific housing policy changes and  controversies  inevitably occur.  The following chapter examines  the  origins of China's urban housing problems, the rationale for housing policy reform, the recent introduction of the new housing policies and the obstacles being experienced in implementation of the new policy.  Popular resentment to the administration of urban housing is new. In "My Neighborhood" in Mao's People, Frolic (1980) describes vividly a case about various problems associated with the urban housing administration in Shanghai during the Cultural Revolution. 1 2  65 C H A P T E R 5. U R B A N HOUSING POLICY RE-EVALUATION AND HOUSING COMMERCIALIZATION IN CHINA  At the third Plenary Session of the 11th Communist Party Central Committee in December 1978  -  two years  after the official end of the Cultural Revolution -- new  key tasks for the government were established: the modernization of the economy, the reform of rural and urban economic structures, and the opening of China's door to the outside  world.  struggle"  was  government  identified  and  campaigns  During  and  the  the  thirty  years  the  primary  as  masses  political  were  and  before task  constantly  social  1978, of  the  engaged  upheavals.  especially  in  Since  after  government seemingly the  1966, and  "class  both  the  endless political  re-orientation  of  the  government's policies, especially the implementation of rural and urban economic reforms, China has experienced dramatic economic growth and a marked rise in the standard of living.  In terms of residential construction in urban areas, the state has allocated an  increasing amount of national capital every year to improving the living conditions of urban residents. not resulted  in  However, the state's increasing efforts in residential construction have any  significant  relief of the  dissatisfaction of many urban residents. the government's started to  pressing  housing policies  shortages  and of the  This situation inevitably stimulated a debate on  housing policies in the mid-1980s.  adjust its  housing  In the meantime, the government  and introduce experimental programs of housing  commercialization in a few selected cities.  This housing  chapter first  sector,  then  assesses the impact of the  examines  various  aspects  finally discusses recent housing policy changes.  of  economic reforms on the urban  the  previous  housing  policies  and  66  5.1. Impact of Economic Reforms  Both  the  respectively,  rural  have  and  urban  economic  had a significant  the rural economic reforms was into China's urban areas. housing situation.  reforms,  impact on the  beginning  in  1979  urban housing sector.  and  1984  A result of  that a large amount of surplus labor began to migrate  This exerted further pressure on the already desperate urban  In addition to this, and as a result of the economic reforms, several  very significant changes  occurred which eventually led to the re-evaluation of government  urban housing policies.  5.1.1. General Increase of Living Standard  Since 1979, The  amount that  per  capita  percent late  in  after  1980s,  the per capita income has increased and living standards have risen. urban  1982  to  adjustment as  residents  spent  on living expenses increased from  916  yuan  for  inflation (Li, Peng  a consequence  in  of the  1987,  with  an  1988,  overall economic  average p.23).  their needs in terms of food and clothing.  these  two  needs,  color  television  sets,  washing  citizens' savings  have  increased significantly.  residents  has  been greatly  housing units  were  for  shelter  adequate  urban  population,  proportion  of  many families  machines  their  in urban though  income  now and  to  areas  past  improvement in their housing conditions.  6.3  China  in the  majority of  citizens  afford  luxury goods, In  addition,  such  the  as  urban  of urban  a considerable number of state subsidized  nine years.  have  housing  to  urban  of  Besides the expenditure on  refrigerators.  continues  some  able  growth  The housing situation for some  improved because  completed in the  even  are  In  growth, the  can now satisfy basic  annual  494.5 yuan  to  However, because  exceed  become  consumption,  the demand  supply,  the  enough  to  devote  not  seen  any  rich have  majority of a  the large  significant  67  5.1.2. Housing Problems Placed at the Top of the Government Agenda Urban  housing  problems  have  making a greater effort to achieve population. the  On a  importance  of  attracted  renewed  attention  as  the  government  is  a general improvement in the living standard of the  number of occasions, improving housing  top  government  conditions.  Xiaoping, the de facto leader of China,  leaders  For example,  have in  stressed  March  publicly  1980,  Deng  stated:  We must tackle the question of urban housing provisions. This would involve a series of policies in relation to housing allocation. I mean the urban residents can buy or even to build their own houses (Zhang, Xiaqiu 1986, p.9). In  1981,  of  the  Fifth  Council major  in his  "Report on the  National People's  (China's highest issue  affecting  Work  Congress,  Ziyang,  the  then  Premier of  Session  the  State  people's  quality  of  was  life  in  cities  and  that  improvement  believes  common  China:  that "it  this  accords  is  in  with  the  a key task of every level of government.  It  the the  the  in  Chinese government is determined to solve the housing problem.  government in  Zhao  Fourth  governing body), pointed out that the housing problem was  housing situation as soon as possible is clear that the  of Government" delivered at the  public will  interest  and,  to  use  an  of  the  people  and  the  helping  all  people  gain  sufficient  The  expression  general  trend of  events" (ren xin suo xiang, da shi suo qu).  The housing  is  government's a  crucial  commitment  factor  in the  to  development  of the  urban  housing  and  sector  better  in China.  More important, it is widely noted that the government will continue to strive to solve the  housing  problem.  This  Government" delivered by of  the  Seventh  is  clearly  in  L i Peng, Premier of the  National People's  major tasks of the State  reflected  Congress  in  1988.  the  "Report on  State He  Council, stated  the  at the that  Work  of  Fifth  Session  one  of  the  Council over the next five years will be the following:  On the basis of increased production, raise the incomes of urban and rural people and improve their material and cultural life. The starting point and the end of result of socialist construction are the satisfaction of the material and cultural needs of the people. Government at all levels will, as always, work energetically to raise the people's living standards (1988, p.42).  the  ten  68  5.1.3. Housing Achievement  A  major  construction. 1986.  element  The state  Since 1979  of China's built  housing  1.005 billion  policy square  since meters  1979 has been of housing  This figure represents 65.39 percent of the total new urban  1949 (Ye 1988, p.34).  Table 8 demonstrates  a dramatic  residential  from  1979 to  housing built since  increase in the state's total  housing investment and in annual house construction since 1979.  Table 8.  Urban Housing Construction in China (1979-1985)  Investment (million yuans)  Year  F l o o r Space Change o f p e r (million c a p i t a f l o o r space square meters) (square meters)  Number o f apartments (million)  1979 1980 1981 1982 1983  7730 12370 13500 17910 18600  62.56 82.30 79.04 90.20 81.25  3.7 3.9 4.12 4.4 n/a  1.25 1.83 1.88 2.36 n/a  1985  21530  88.13  6.1  n/a  Source:  The increased  Based on G. Brent H a l l X i a n " , p.122.  and J . Zhang, " C i t y  rapid increase in housing investment in recent years can also be seen in its proportional  share  of China's  GDP.  in housing was 2.04 percent of the annual in  In 1979, capital construction  GDP  1 3  ;  investment  in 1980, it rose to 2.68 percent;  1981 it was 2.50 percent; in 1982, 2.94 percent; in 1983, 2.43 percent; and  1984, has  Profile:  2.10 percent (Lin 14  committed  increase  1986b, p.45).  increased resources  in capital  investment  amount of capital investment  These  statistics indicate  to residential  in residential  construction.  construction  in other sectors, such  that  the government  However,  means  a  as industry, many  in  because the  decrease  in  the  analysts suspect  This figure was calculated based on the assumption that the G D P was 1.13 times the Gross National Income; same for all subsequent years. 13  "This figure has been adjusted because G N P figure. 1  in that year there was an officially announced  69 that such a high level of capital investment in housing will be difficult to sustain (Lin 1986, p.45).  It is argued that the national capacity for construction is still limited and  too rapid an increase in housing investment will not result in a balanced development of the national economy.  5.1.4. Housing Goals vs. Housing Problems The Chinese government has established an ambitious housing goal to double the current average of 4 square meters per capita living space to 8 square meters by the year of 2000.  A rough estimate shows that in order to achieve this goal, in the  thirteen years from 1988 to 2000, more than 400 billion yuan is needed to construct new houses.  If the investment in support items,  1 5  such as service facilities and public  utilities, is included, the total investment required is about 600 billion yuan (Ma 1987). If the cost of maintenance and repair is taken into account, the amount of the total housing finance needed would be much larger.  Based on the state's ability to invest in  the housing sector in the past, it will be very difficult for the state to provide this level of funding in the next decade. Those citizens who were able to obtain state subsidized housing in the last few years have had their living conditions greatly improved.  But, in general, it appears  that the state's increasing effort in residential construction has not made any significant improvement in the urban housing situation.  Under existing housing conditions, it has  been discovered that some people abuse their position and power to demand several apartments, while the majority of ordinary people still live in over-crowded conditions. Factors such as these contribute to the fact that urban housing problems are becoming more  acute  and  that  housing  distribution  has  become  a  severe  social problem.  Consequently, it is important to examine in depth the origins of urban housing problems In a planned development of a residential district or housing estate in China, all the structures except the main ones, e.g., the apartment buildings, are referred to as support items, including the service facilities and public utilities (Lin 1987, p.274). 1 5  70  and the need to make housing policy changes.  5.2. Housing Policy Re-evaluation  5.2.1. The Origins of Housing Problems  Today's factors.  urban  housing  problems  in  China  originate  from  various  interrelated  Taubmann has summed up the reasons for the present housing problem.  His  summary finds general agreement in Chinese literature. Those regarded as most important [reasons] are: the appalling situation at the time when the People's Republic was established, the rapid population growth in the cities, a long period of accumulation favoring one-sidedly the productive and, above all, the heavy industrial sector, up to 1960 the erection of too numerous and too costly public prestige buildings, year-long disregard of building maintenance, lack of building material, inefficient and therefore uneconomic organization and working methods in construction administration and building industry (1985, p. 184).  Two other elements also contribute to the problem. the  1960s baby-boom generation have  One is that the children of  reached marriageable age,  number of married couples in recent years.  rapidly increasing the  This trend is expected to continue into the  next decade.  Another factor is the rapid migration of rural population to urban areas  due  impact  to  the  of  rural  economic  reforms  and  the  concomitant  increase  in  agricultural productivity.  More important, it has been widely argued that the policy of low rents and high subsidies  is inappropriate in a developing  socialist  economy.  There is much evidence  suggesting that this policy is a direct cause of China's urban housing problems. because rents are kept extremely  low, rental return is not sufficient  maintenance  costs associated  construction.  costs, let As  a  alone result,  rapid deterioration occurs.  the  necessary Second,  repairs  since  there  are  First,  to cover routine  with administration, depreciation and frequently  deferred  and,  therefore,  is little return on the state's housing  investment, the more state subsidized houses are built the heavier the financial burden  71  the  state  rapid  has  to bear  in order to maintain the existing  increase of costs of building materials, it has  to allocate funds to maintain the housing stock. a  hotbed  family  of inequalities and  to occupy  a  nepotism  large house.  the more subsidies it receives from a  larger  house  member). many  is a  In view  take  themselves  large  advantage  Third, the policy of low  in housing allocation.  usually  with  a  lower  power  and  positions  It costs very  little  for a  a family occupies  average  income  per  family  of a large house,  to obtain more  has  as a  housing  space for  Commodity  long been  a  was  commodity  on  over  A  not  serious debate initiated  economic  until  economy"  (1987,  to a  on  perception.  It was  commodity in  simply  fundamental  taken for  only to capitalist  whether housing in the socialist economy  recently  development.  Party, states, "The  economy  this paper  this  a  that in a socialist society, the government should take care of everything,  including housing.  Communist  given to justify  welfare good rather than  that the concept of housing as a commodity was  concentrate  was  as  granted  societies, and  thought  viewed  Little  policy  rents creates  the state (the state assumes that a family living in  China.  debate  to the  become more difficult for the state  Better yet, the more living space  family  of their  Due  or to practice favoritism in housing allocation.  Housing  planned  stock.  of all these benefits that accrue to the occupacy  5.2.2. H o u s i n g  commodity  housing  Zhao  p. 18).  planned  nature  the  Party  Ziyang,  the  adjusted its basic  line  general  of  secretary  theme of the economic reform is to develop China  commodity  to explore the reasons behind the  when  of housing  has  begun  economy.  to change  While  is a  from  it is beyond  a  a the  to the  socialist  completely scope  of  this switch, it is important to note that this  is clearly  in line  with  the  government's  the  socialist  economic  changes.  The categorized  debate into  two  over  the  major  nature  of  schools: "single  housing  in  commodity  attribute"  and  economy  can  be  "dual attributes".  72  The  former maintains  that  housing be considered purely as  a commodity.  latter holds that housing should be considered as a commodity as good.  While both schools agree  Yet, the  well as a welfare  that housing has a commodity attribute, they argue  whether housing also has a welfare attribute.  The concept of housing as a commodity is shaped by the nature of the socialist economy. public  In general, the socialist economy is a planned commodity economy based on  ownership  activities. socialist  of  In other economy,  important  the  words,  commodity  circumstances,  it  of  production  although  is  to  the  socialist  production believed  and  that,  playing  public ownership  private and semi-private  supplements  production,  means  a is  value (i.e., it is useful  role  economy. market  In  addition  exchange  like' other  to  still  commodities,  to occupants).  in  economic  a major component of the  ownership of the means  considered a commodity because housing has both value and use  primary  of production are nationally  exist.  housing  planned  Under should  (i.e., it involves  these  also  be  labor input)  In short, it is argued that because  there exists commodity production in the socialist economy, the consumption of housing should be subject to the  law of value  and to the  mechanism of buying and selling  (Wang, Yuqing 1986, p. 14).  Advocates of "single commodity attribute" go further, arguing that: There is no essential difference between the socio-economic attribute of housing and that of other commodities. If we say that commodity under socialist conditions is no longer a commodity in the original sense, then this should also hold true not only for housing but also for all the other commodities. Housing is not an exception (Wang, Yuqing 1986, p. 15). Moreover, it is argued that the  history of housing development  in China has proven  that the government is incapable of assuming exclusive responsibility for the provision of housing as a public good.  Thus, it is asserted that housing should be viewed only as  a commodity in socialist China.  Those  who  maintain  "dual  co-exists with production economy  attributes"  hold  in a socialist  that  economy,  because the  commodity  economy  commodity attribute of  73  housing co-exist with the commodity economy and  its welfare attribute co-exist with the  production economy (Wang, Yuqing  This view does not accept the notion  of totally have  neglecting the  been  welfare  associated with  thirty-odd years.  the  1986,  p. 14).  attribute sole  of housing  emphasis  It is further argued  on  simply  the  because  welfare  many  attribute  drawbacks  in  the  past  that:  the nature of distribution of national income determines the welfare attribute of housing. Under the socialist system, laborers are not paid with all the value they have created. Our country practises a low-wage system, and therefore the share each laborer gets from the society basically does not include the payment for house rent which has a pure commodity attribute. If our workers and staff members were asked to pay for housing expenses according to the value of commodity, their wages would hardly be enough to maintain the simple reproduction of the labor force, and they would find themselves homeless for their failure to pay housing expenses (Wang, Yuqing 1986, p.15). In  addition,  commodity an  the  different from  extremely  Therefore,  advocates  high  the  "dual  attributes"  other commodities.  value  socialist  of  and state  Housing  at the. same should  maintain  employ  time  that  housing  is  a  special  is a kind of consumer good with  it is a  basic  means  appropriate national  of subsistence.  economic  policies  to  ensure that every worker has a house.  Although  the controversy over the housing  schools recognize that housing has it  is commonly  recognized  that  a commodity housing  as  attributes has  not been resolved, both  attribute in a socialist economy.  a  commodity  in  a  socialist  Also,  economy is  different from that in the capitalist economy: housing production, marketing, management and  maintenance in the socialist economy  national  economy.  Based  on  these  are under the guidance  agreements  decided to reform its housing policy accordingly.  in  the  of the  discussions,  the  plans of the government  74  5.2.3. Is Housing a "Non-productive" Sector?  The housing sector had always been viewed as a "non-productive" sector in socialist China.  It can be argued that this notion is untenable.  Although it is not the  purpose of this research to analyze in depth why the housing sector should not be viewed as "non-productive" sector and as a mere consumption of national income, it is worthwhile to point out some of the apparent aspects which indicate that housing can enhance economic growth, not reduce it. affect  individuals' job opportunities,  education.  First, it is obvious that housing conditions can  performance at work, and even their children's  Good housing will help nurture more qualified and productive labor for a  society and hence contribute to its socio-economic development.  Second, an increase in  housing investment will promote the development of the building industry and create more employment.  In this sense, it is erroneous to perceive housing investment as  "returnless expenditure".  Third, housing provides a physical space in which households  and individuals consume various domestic products such as TV sets, refrigerators and washing machines etc.  Thus, adequate housing will permit and encourage consumption  of various consumer goods that will contribute to general economic development. order to provide better quality housing to all citizens  In  and to advance the socialist  economy, it is therefore important to give more economic significance to housing as a potentially productive sector.  5.3. Rationale for Housing Policy Changes and Housing Commercialization  5.3.1. Rationale for Housing Policy Changes  The housing policy re-evaluation in the previous section has already indicated the importance  and  necessity  for  housing  policy  changes  in  China.  The  following  summarizes some of the key factors which have led to the government's decision to reform housing policies and to introduce housing commercialization programs.  75 Tenacious housing problems.  The scale and severity of the urban housing  problem as well as its accompanying social impact has become so serious that it has hindered further social and economic development and has attracted a great deal of concern in the country.  Under the  guidance of the  previous housing  policy, the  government, since 1979, has made a consistently greater effort to mitigate the urban housing problem.  However, the effort  improvement of housing conditions.  did not seem to  result  in any  significant  Consequently, a re-orientation of housing policy  became crucial. Demographic changes and urbanization.  birth control policy has been very successful increase generally  Although the  in China, the momentum of population  will continue at least until the end of this agreed  that  the  process  of  implementation of the  century.  urbanization will  In addition, it is  accelerate  as  the  country  energetically continues its economic reforms.  The pressure created by these two trends  on the  has  already problematic housing  sector  inevitably  brought previous housing  policies into question. Insufficient  resources.  Residential construction requires  such  a considerable  amount of input of resources that the state has experienced difficulty in increasing national investment in the construction of heavily subsidized public housing. still a poor country with limited resources.  To promote industrialization is certainly no  less important than to improve housing conditions. resources  China is  Even though increased economic  have been allocated to residential construction in recent national economic  planning, it is still important to maintain a balance between the expansion of production and construction and the rise in the people's standard of living.  Therefore, in addition  to the state's continued allocation of a reasonable and significant proportion of national capital to residential construction, to improve urban housing conditions, other possible sources of finance have to be sought.  76 Possible  alternatives.  housing development,  In view of the limited financial resources  promoting a more efficient  available for  use of national housing investment  is  obviously one of the most logical ways to accomplish China's ambitious housing goal. Clearly,  this  management  could and  be  only  fulfilled  construction  by  systems.  reforming  the  To reform  the  existing housing  housing  financing,  system  which  has  prevailed for nearly fourty years is rather complicated and will take a long time to accomplish.  In view of the significant increase of living standards of Chinese in recent years, one possibility is to tap individuals' savings in order to speed up residential construction. This  proposition would have  welfare  good.  But since  been  the  unthinkable  when  housing was  viewed  as  a pure  notion of housing having a commodity attribute in the  socialist economy has become more widely accepted, the proposal to encourage individual financial participation in residential construction seems justifiable two practical questions savings  to participate in residential construction and what percentage  to  address  experimental individuals' selected  these  participation  medium-sized  examining  questions  is  to  contribute?  experiment  housing commercialization program based financial  this  However,  arise: what proportion of the urban population possesses enough  can this group of the population effectively way  in theory.  cities:  program  in  in  residential  Changzhou, detail,  it  It was decided that the best with  the  on the  construction  Zhengzhou, is  of their income  idea.  In  1982,  principle of encouraging was  introduced  Shashi  and  Siping.  to  clarify  what  necessary  an  in four Before "housing  commercialization" means in China.  5.3.2. What is Housing Commercialization ? "Housing commercialization" is a term used to reflect the state's housing policy changes in China. no longer  viewed  It has the following meanings. , First, it suggests that housing be as  a pure  public good.  Instead,  it  is  considered  to  have both  7 7  commodity and welfare attributes. commodity.  That is to say, housing is considered a marketable  Selling and buying houses under state price control is permitted.  At the  same time, housing being a welfare good implies that the state will continue to help all citizens obtain adequate and better quality housing by means of various subsidization programs. Second,  the  major  purposes  of  introducing  the  concept  of  housing  commercialization are: (1) to change the traditional notion that the socialist government should be responsible for the provision of all urban citizens' housing; (2) to mobilize all work units and all levels of government to develop housing; and (3) to encourage a gradual increase in individual financial participation.  Through implementing the policy of  housing commercialization, it is believed that considerably more financial resources will be allocated to the housing sector (Zhang, Xianqiu 1986). Third,  although "housing commercialization" means  an increased role for the  market mechanism in the socialist housing economy, there are fundamental differences compared to how the market works in capitalist economies.  One difference is that the  function of the market approach in China is based on the public ownership of the means of production, which means that the state controls various production resources. Another difference is that production and exchange of housing in China is still guided by the state's overall economic plans.  As such, the state has effective control over the  market mechanism.  A further difference  is found in the objective of adopting the  market mechanism.  In China, the introduction of the market approach is intended to  eliminate those weaknesses associated with the administrative mechanism so that the country can resolve its urban housing problems and provide better quality housing for all citizens in the shortest period of time.  In contrast, the market mechanism in  capitalist countries is characterized by the objective of obtaining maximum profits.  78 5.3.3. Advantages of Housing Commercialization It is  envisaged  that  the promotion of housing commercialization will benefit  housing development in the following ways. the  commercialization  construction.  policy,  there  will  First, as a result of the implementation of be  more  funds  available  for  residential  Resources available for housing development will now include the state's  allocation of national capital, more funds from various work units  and reasonable  proportions of individual households' income and savings. Second, it will alter the way in which housing construction funds circulate so that the state's investment can be recovered to a certain extent.  This will then enable  the state to maintain the existing housing stock properly and to carry out necessary repairs promptly.  Eventually, the state intends to terminate the vicious cycle that the  more housing the state builds the heavier the financial burden it shoulders.  Thus, "the  urban housing sector could become financially more healthy and self-sustaining and less of a burden on the state's investment resources" (Carlson 1986, p.25). Third, the implementation of the commercialization policy will help change the composition of families' consumption so that excessive demand for other commodities can be reduced.  Many families have accumulated considerable savings.  This has resulted  in a high demand for more domestic consumer items than the economy can currently supply.  To direct some proportion of a household's savings and income into residential  construction will change household spending patterns. Fourth, it will promote a sense of home ownership and an incentive to maintain dwellings.  Consequently, housing units may last longer.  Under the present housing  system, because most of the urban housing stock is owned and operated by the state, many dwellers do not take good care of their houses • and some even abuse their dwellings.  Thus, houses dilapidate at a higher rate.  79 Fifth, to some extent, housing commercialization will associate a family's housing standards with its financial capacity.  As such, unreasonable housing demand may be  stopped and corruption and nepotism in housing distribution prevented. Above all, because of the increased level of financial resources, a higher rate of housing production can be achieved. and more housing choices created.  More better quality housing can be constructed Eventually, living conditions of all urban citizens'  can be improved significantly.  5.4. The Housing Commercialization Pilot Program  In 1982 the central government decided to carry out an experimental housing commercialization program in four cities.  The major purpose was to gain experience by  trial and error so that better programs could subsequently be formulated for other cities across the country.  This initial experiment with housing commercialization was later  extended to eighty cities including Beijing, Shanghai and Tianjin (Zhang 1986, p. 10). However, only a small percentage of the state built houses have been authorized for sale while the vast majority are still allocated through the administrative approach. The implementation of the policy of housing commercialization has proceeded cautiously. By the early 1988, the State Council decided to launch a nation-wide housing reform and carry out housing commercialization programs in more cities.  5.4.1. The Subsidized Housing for Sale Program  The housing commercialization program implemented in the four cities consists of two major facets: one is a highly subsidized housing for sale program; another is reform of the rental system. Subsidized housing for sale.  Few people can afford to buy housing sold at  actual cost due to the low level of incomes.  Therefore, the subsidized housing for sale  80 program, with slight variations among the four cities, was introduced.  Typically, a  prospective buyer pays one-third of the total cost of construction with the local authority and the buyer's work unit equally sharing the remainder.  In this way, although only  one-third of the initial investment was recovered for reinvestment in more residential construction, the state perceived a great potential in the subsidized housing for sale program.  Given the continuing rise in living standards, it could be reasonably expected  that the buyers' payment will be gradually increased. The price of houses built for sale ranged from 300 to 1000 yuan per square meter in the subsidized housing for sale program (Su 1988).  Assuming a rate of 600  yuan per square meter, an apartment of 50 square meters floor space would cost 30,000 yuan.  A buyer who paid one-third of this cost would require 10,000 yuan.  This subsidized price still seemed to be beyond the purchasing power of the average urban residents whose annual income ranged from 700 to 1,000 p. 223).  yuan (Kim 1987,  Originally, there was some concern that all the housing units built for sale  would not be sold because the huge gap between the cost and wages in spite of the significant  subsidies.  However, when the experiment was announced, there was an  active response from would-be buyers, who far exceeded the number of housing units designated for sale (Xiao 1987, p.40). Why, then, one might ask, were there so many prospective buyers despite the apparently high price?  Most of the buyers were not individuals but work units which  needed apartments badly for their increasing number of employees and which wanted to keep their competent employees from transferring to other work units which were able to provide better housing. 1986).  About 80 percent of the buyers were work units (Dai  These work units then sold houses to their employees at much lower prices or  simply allocated them according to need and merit. For individual buyers, it was discovered that many were families with only average  or low  incomes.  How could they  afford to buy the  high-priced houses?  81  Further investigation revealed that many of the family buyers were supported financially by their kinsmen.  For example, in order to satisfy their long-felt housing need, couples  would borrow money from their parents and relatives to buy houses (Liu, Xinxin 1987). To many families, the subsidized housing for sale program was like a welcome rain after a long drought.  The experiment showed that this kind of housing sale was  welcomed by many people.  Also, it indicated that the sale of a limited number of new  housing units benefited a few families but hurted none (Carlson 1986). Rent Increases.  All four cities also changed their rental systems.  raised but by very little.  1 6  The increased rents  Rents were  still did not cover the cost of  maintenance and depreciation since any excessive rise in rents would not be consistent with the present generally low salaries.  After  rents  were  increased,  subsidies of  varying amounts were paid to individuals or families based on their income.  Special  care was given to those with very large houses or very low incomes so that inordinate increases in their expenses could be avoided. Conditions of tenure.  In the heavily subsidized housing for sale program, as  the buyer was not required to make mortgage payments on the two-thirds of the cost, the question of conditions of tenure  arose.  Publicly, the  ownership of the sold housing units belonged to buyers. houses to whomever they preferred.  state claimed that the  The owners could sell their  But the transaction had to be processed by the  state agencies and selling prices were regulated by the state.  These rules aimed to  restrict individuals from making a profit by buying and selling houses.  Moreover, each  household was allowed to occupy only a certain amount of floor space even though it could afford to buy a larger house. allocated to more needy households.  This rule would ensure that living space could be In addition to these rules, however, no other  conditions of tenure were yet clearly defined.  More research on this matter was  The literature available which covers the housing commercialization program in the four selected cities does not go into much detail about rent increases. This suggests that the change in rent level was not significant. 1 6  82 expected to be conducted. It is generally agreed that the experiment with the housing commercialization program in the four selected cities has proven successful. From the late 1982 to the end of 1983, there were altogether 1746 dwellings sold through subsidy in these four cities. The built area was 92,000 square meters and the investment was about 13.3 million yuan. Return on investment was 2.67 million yuan. It is expected to receive another 1.22 million yuan which together will make up 30 percent of total investment. Workers are very keen to buy their own houses (Zhang 1986, p.10). Upon the initial success of the housing commercialization experiment, various housing commercialization programs, largely identical but with minor differences, introduced in eighty cities.  5.4.2. Rental Reform  were  then  However, things still proceeded cautiously.  vs. the Wage  System  It is widely agreed that readjustment of the present rental system is the key element for the commercialization of housing.  In the present low-rent situation, many  people who already live in the state built low-rent houses feel that it is not worth buying a house. and  In addition, some people pay little rent for their spacious dwellings  simultaneously receive more government subsidies  policy, subsidies  because,  according to present  are directly proportional to the amount of living space.  Since a  majority of urban residents still live in public housing at low rent rates, it is obviously unfair to make those house buyers pay much more for their houses.  Most of the  house buyers decide to buy a house not because they are better-off but because they are in badly need of a house.  This is evident in that the house buyers in the four  cities include a large percentage of newly-wed couples who had waited for many years for a house to be allocated by their work units. It is widely argued in China that ideally, monthly rental payments should include: (1) housing depreciation; (2) maintenance fees and repair cost; (3) management cost, (4) real estate taxes; and (5) interest on housing investment.  Based on this, it is  83 estimated that the rent for one square meter of floor space should be 1.56 yuan (the State Council  1988).  Calculating according to this rate and assuming a household  occupies an apartment unit of 30 square meters, it should pay 46.40 yuan for rent, which is more than half of the monthly income of an average urban worker.  If rents  have to be raised to this level for the purpose of promoting housing commercialization, obviously,  the  present  low  wage  system  has  to be changed.  This  is  a rather  complicated issue because a change in the wage system will affect national economic planning, the price system,  and the well-being and interests of the general public.  Therefore, rental reform is not only an economic question but also has political and social implications.  It is beyond the scope of this research and beyond the author's  knowledge  moment  at this  to  explore  this  issue in any depth.  However, it is  important to bear in mind that there is an economic chain effect in the wake of rental reform. In order to minimize the negative impact of rental reform, it has been suggested that  increased  rent  be  instituted  incrementally.  subsidies to low-income families will be necessary.  Meanwhile,  purchasing a house.  government  Many cities have issued vouchers to  families affected by rent increases based on their income. only for payment of rent or for a savings  continued  The vouchers can be used  account which may only be used for  This kind of subsidy is referred to as a change from "concealed  subsidies" for all to "open subsidies" for those in need.  In this way, rents are  increased while poorer households do not bear an excessive additional financial burden. The housing commercialization programs in the eighty cities are still in the experimental stages.  The government hopes to work out a more satisfactory system for eventual  implementation in all parts of the country.  84 5.4.3. Public Opinion Polls  Governments at various levels have been very careful about the implementation of housing commercialization programs.  Through mass media and public meetings, the  governments have attempted to explain the policy of housing commercialization to the public and to provide urban citizens with opportunities to voice their concerns.  Surveys  conducted in cities of Fujian, Heilongjiang and Hubei provinces indicate that although some urban residents worried that their standard of living would go down as rents went up and complained they could not afford to buy their own apartment, more than half of the urban residents surveyed were in favor of reforming the housing distribution system  (Beijing  Review  1988, p.8).  commercialization program was  In  the  city  of  Yantai,  before  activated, a public opinion poll was  fourteen work units which represented different social groups.  a  housing  carried out in  The opinion poll showed  that 61.19 percent of the participants were in favor of the program, 13.66 percent adopted an indifferent attitude, percent abstained.  22.81 percent were against  the  program and 2.34  Through extensive public participation, the government intended to  make the housing commercialization programs more workable and to gain wider public support.  5.4.4. Expansion of Policy Experiments in Housing Commercialization  On  February  15, 1988, the State Council of China decided to extend  the  implementation of housing commercialization policies to a larger group of cities over the In 1988, experiments with housing commercialization would  next three to five years.  still be limited to the eighty cities. commercialization  would  be  implemented  From in  1989, however, more  cities  and  the on  policy of housing a  greater  scale.  According to the State Council's plan, every province, municipality and autonomous region will select several cities or counties  as pilot areas for the housing reform.  Experiences gained in these areas will then be used by other cities.  By the end of  85 1987,  China had 381 cities and more than 10,000 towns and counties  Council 1988).  (the State  All these areas, except for those in border, remote and economically  underdeveloped regions, are expected to have implemented housing reform by 1990. As outlined in the Circular, "On the Implementation of Housing System Reform by Stages and in Groups", prepared by the State Council, the aim of the housing reform is to replace the current housing system whereby the state builds housing units and distributes them through work units.  Under the new housing policy, housing units  will be sold in line with the demands of the socialist planned commodity economy (Beijing Review 1988, pp.8-9).  The tasks of housing reform in the coming three to  five years include reforming the rental system for state-owned housing units, easing housing shortages and encouraging urban residents to buy houses for themselves. Housing reform will contain the following major facets: -- Changing the system of distributing state funds from subsidies for housing construction and maintenance to subsidies for wage earners; - Replacing the current planning and management system, which considers housing construction as fixed capital investment, with a system that regards it as commodity production; - Forming a housing fund to rationalize various funding channels through reforms in financing, taxation, wages and prices, and real estate management; - Launching a real estate market and developing real estate financing . (Beijing Review 1988, p.9).  5.5. Obstacles to Housing Commercialization  In most capitalist countries, housing has always been treated as a commodity to be bought and sold.  But in China, it will be extremely difficult to change the popular  concept of housing as a welfare good.  Quoted by Economic References on May 24,  1987, one senior worker in Bengbu, Anhui Province complained, "The 'old' Communist gave us houses; but why did the 'new' Communist want us to buy houses?".  Although  his view may not be shared by many people, it indicates that the implementation of housing commercialization will not be easy.  86 The reform of the housing finance, management and construction is inevitable because the government has shown an inability to meet the ever increasing demand for housing when housing was viewed as a pure welfare good.  The readjustment of the  rental system and the experimental subsidized housing for sale programs are considered to be a suitable starting point.  Even this first step, however, is beset with difficulties.  From an economic point of view, the need to reform the present policy is apparent.  Nevertheless, the change is a difficult political decision for the government to  implement because raising rents or restructuring the rental subsidy program could mean vast modification to the economic system and generate fears that the beneficiaries of the present housing system will be hurt.  To be more specific, the commercialization of  housing will lead to the redistribution of benefits among various social groups.  The  difficulty is that decision-makers themselves are the ones who benefit most from the present form of housing policy. With regard to the subsidized housing for sale program, it is argued that many moderate and low income households are unable to participate in the program and will remain in intolerable housing conditions.  In addition, many work units are reluctant to  contribute their subsidies because they believe their available funds could be used more productively in other areas. help their employees.  Other work units are financially constrained and cannot  Thus, it is argued by some that such a strategy cannot over  the long time be too successful.  Moreover, difficulties for the housing reform also come  from those work units where employees have already benefited from the policy of low rents and high subsidies, and enjoyed better housing conditions. Most important of all, the change from the distribution of housing by housing bureaus or work units to the sale of state built housing units is a very complicated issue which requires simultaneous  alteration of various political, social and economic  departments such as the national socio-economic planning, financial, resource and banking departments.  Therefore, this easier-said-than-done  housing policy reform has so far  87 progressed in a gradual and cautious manner.  5.6. Conclusion The recently initiated strategy of the commercialization of housing has not yet resulted in any major improvement of housing conditions.  It is still to early to  evaluate in any depth the effect of the housing commercialization policy.  However, it  is clear that the government is determined to solve urban housing problems and firmly believe  that  the  policy  of housing commercialization is  a potential  solution. . This  intention is stated in The Seventh Five-Year Plan (1986-1990): We should commercialize housing in the cities and towns and speed up the growth of residential construction industry, making it a pillar of the national economy. ... (Carlson 1986, p.l). Some aspects of the issue of * housing commercialization have not been analyzed in-depth in this research since there is little available literature.  Clearly, follow up  research on the reform of housing policy in China, which affects 200 to 300 million people, is of special significance to the world-wide struggle to improve human settlement conditions.  88  CHAPTER A COMPARISON BETWEEN  This Hungary well  as  chapter  attempts  in terms of urban rationales  Hungary's  to  draw  CHINA A N D  tentative  housing policies, housing  for recent housing  experience  a  6.  in implementing  policy a  changes.  housing  HUNGARY  comparison delivery By  between  systems and  doing  China  problems as  so, it is hoped  commercialization policy  and  that  could provide  useful lessons that could benefit China's future housing effort.  6.1.  Similarities and Differences in Urban Housing Policies, Housing Delivery Systems and Housing Problems  Economically, Hungary's  GNP  Hungary  per  capita  is  a  in 1983  much was  more  US  $2,429, which  than that of China in the same year (UNIDO population in 1986 57.3  percent  country Hungary  approximately  of its total  than  China.  and  China  exist  systems and urban housing  1986).  country  was  these  urban  distinct  people , 17  differences,  in terms of the nature  than  several  China.  times higher  Demographically, Hungary's total  equaled the size of Beijing.  population as  Despite  developed  However, Hungary  is a  much  significant  of housing  more  with  urbanized  similarities  between  policies, housing  delivery  problems.  According to figures collected by the United Nations, the following countries's urban population as a percentage of their total popualtion in 1982 were: Albania 33.7%, Bulgaria 63.9%, China 20.6%, Czechoslovakia 73.7%, German Democratic Republic 76.5%, Poland 59.3%, Romania 48.5% and the USSR 64.1%. See Demographic Yearbook, 1986. 1 7  89 6.1.1. Nature of Housing Policies Prior to recent housing policy changes, both countries' urban housing policies were formulated on the basis of the economic concept that housing in socialist economy was not a marketable commodity but a public good.  As such, the states assumed full  responsibilities for providing adequate housing for all urban citizens.  In theory, all  urban citizens in both countries were entitled to the state built housing stock. accorded  with  one  of  the  housing  goals  common in both countries  This  — providing  approximately equal living conditions to all citizens, although, in reality, this explicitly stated goal was not accomplished. The role of the state in the urban housing sector was also similar in the two countries.  The state determined the proportion of national income to be allocated to  residential construction and outlined the quantitative housing goals of the  respective  countries for a particular period of time.  Then, the state-run building companies carried  out specific residential construction tasks.  Housing policies in both countries favored the  development of the state-owned building enterprises and private housing activities were not encouraged.  Consequently, the  states dominated nearly every  aspect of urban  housing. Both governments considered residential construction a "non-productive" sector. housing sector  received low investment  As  a result,  the  planning.  Both countries' economic policies were deliberately committed to promoting  extensive and rapid industrialization.  priority in national economic  But, in practice, unlike Hungary, in the years  before 1979, China had a political leadership which devoted more importance to "class struggle" than to the economic development of the country.  90 6.1.2. Housing Delivery Systems Hungary and China developed two very similar urban housing delivery systems. At the beginning of their socialist  economic  and social development,  both countries  redistributed the urban housing stock among different social groups in an attempt to ease the  immediate  urban housing problem and alleviate  inherited social injustices.  Houses confiscated by the state were administratively re-allocated more evenly to needy urban residents.  Through this redistributional approach, both states firmly established  their dominant roles in the urban housing sector. In both countries, residents who occupied state-owned housing units were required to pay only nominal rents.  Rents, in both countries, were usually less than 10 percent  of a family's monthly income.  This policy of low rents and high subsidies was in line  with the low wage system in the two countries.  It was commonly believed that this  approach would enable all population groups to afford rental housing.  In addition, the  states were responsible not only for housing construction and allocation but also for housing management and maintenance. In terms of housing tenure, the situation in Hungary differs greatly from that in China.  Despite government housing policy not favoring the private housing sector in  Hungary,  the  private  housing  market  has  survived  supplementary role to the public housing sector.  and  played  a  significant  The state was able to finance at  most about half of the total annual housing starts, leaving the remaining to be financed either  privately  or  laissez-faire attitude  co-operatively. towards  the  Therefore,  in  private housing  reality, sector.  Hungary In contrast,  has  taken  a  the Chinese  government has strictly prohibited the development of the private housing sector.  For a  "rather long period of time, private enterprise in China was considered the "tail" of capitalism which was consequence, ownership,  ideologically  and morally incompatible with socialism.  As a  most cities have less than 10 percent of the housing stock in private most  of  which  was  inherited  from  the  previous  society  (Hall  1988).  91 However, as urban living conditions become overcrowded, the state has been unable to stop private housing activities.  For instance, according to personal observation, many  urban households "illegally" constructed extentions to the state owned properties so as to improve their own living conditions.  But, most of these self-built flats were of very  low quality and lacked basic facilities.  6.1.3. Urban Housing Problems Urban housing problems, such as shortages,  a large proportion of deteriorated  housing stock, visual monotony, poorly finished housing units and inflexible floor plan arrangements, are commonly, found in both countries.  In addition to these problems,  many houses in China's cities are characterized by a lack of basic living facilities such as kitchens, washrooms and running water.  Moreover, the infrastructure in many of  China's cities are either overloaded or outworn.  In general, urban housing problems are  much more severe and at a much greater scale in China than in Hungary because socialist  China  had a less developed  economic  foundation to start  with and, more  importantly, because the Chinese government has neglected residential construction for a much longer time. shortage.  The foremost urban housing problem in both countries is chronic  The Hungarian government is hoping to resolve this by 1990.  The Chinese  government is endeavoring to ease this problem by the year 2000. The severe urban housing problems in both countries have resulted in negative social  and economic  impacts.  In Hungary, it was  discovered  that  urban housing  problems contribute to high divorce and suicide rates and a very low birth rate.  Also,  housing  have  problems  have  resulted  in  the  lack  of  unintentionally activated the informal housing sector.  manpower  in  cities  and  Above all, the issue that has  attracted the greatest concern of society is housing inequality within the sphere of housing distribution.  Against the principle of egalitarianism, the majority of the better  quality state built housing has been allocated to the population groups of higher social  92 status and higher income.  Conversely, the majority of lower social status and lower  income groups have access to only older state housing of lower quality, or have to buy a house on the "black" market or build one for themselves. inequalities  in housing distribution.  But the  inequalities  In China, there are also are more commonly found  between people working in different work units, especially between those in the state owned work units self-employed.  and those in collectively  owned work units  or those who are  The former usually have better opportunities to be allocated state built  housing than the latter.  Nevertheless,  in China, one of the most outstanding social  issues accompanying the severe urban housing problems is the practice of corruption among officials in the area of housing distribution (Beijing Review 1988).  This issue  has created a widespread public resentment and distrust of many government officials (Frolic 1980). concerns  Although Chinese and Hungarian urban citizens have different major  about the  urban social  problems  arising from the  housing  sector,  it  is  important to note that both have major concerns in the sphere of administrative housing distribution.  This  distribution has  similarity suggests  that  the  administrative  approach to housing  some vital weaknesses which are difficult to avoid in a socialist  economy.  6.2. Factors Associated with the Housing Policy Reforms  6.2.1. Increase in National Housing Investment  Interestingly governments  enough,  prior  to  the  recent  in both countries had made great  housing conditions  by  allocating  increasingly  investment to residential construction.  housing efforts  greater  policy  re-orientations,  the  to improve urban residents'  proportions of  national capital  In Hungary, this process occurred from 1960 to  1976 and in China from 1979 to the present.  These changes in investment priorities  in both countries was indicative of the increasing concern of the governments to improve living conditions.  Nevertheless, the consequences of the higher investment rates in the  93 two countries differed somewhat. In  Hungary,  the  higher  correspond with a significant  investment  increase  rate  in residential  construction  did not  in the construction of housing units.  It is  believed that this was mainly due to labor wage rate inflation, rising costs of building materials, and better household equipment for the newly built units.  As a result, the  urban housing shortages still remain. In contrast, in China, the increase in national housing investment has resulted in a considerable rise in the number of housing units completed, the majority of which were better  equipped than those built before  1979.  However, this achievement in  residential construction did not seem to lead to any significant improvement to urban housing conditions in general.  This is not surprising because residential construction in  China had been neglected for more than two decades and the urban housing problems had already become extremely intensified. to  solve  urban  housing  problems  It is unreasonable to expect the government  overnight.  conditions requires a long term effort.  The improvement  of  urban  housing  The major question related the government's  effort in recent years lies in the fact that the completed housing stock could have been allocated to a greater proportion of urban residents in need of shelter had the current administrative approach been able to prevent illegal practices in housing allocation.  6.2.2. Economic Difficulties vs. Economic Growth The economic situations prior to the housing policy changes in the two countries were rather different. 1970s.  Hungary encountered great economic difficulties by the end of  As a result, the state had to reduce its total national capital investment,  which led to the shrinking of national investment  in residential construction.  The  government realized that housing policy reform was essential in order to prevent a sharp decrease in housing construction. housing  policy  re-orientation  in  1982  Thus, one of the was  to  encourage  major purposes the  of the  individuals' financial  94  participation in residential construction so that the total amount of housing investment would include both the state's and the individuals financial resources, and hopefully the momentum of residential construction in the previous years could be maintained. In contrast, China' urban housing policy reform should be seen in the context of rapid nation-wide economic growth.  The recent rural and urban economic reforms have  resulted  in both  standards.  in  a  significant  increase  national  wealth  and individuals's living  Consequently, the state has been able to contribute more of its national  income to residential construction and many urban households have been able to save a large proportion of their income.  In view of the tenacious severity and scale of the  urban housing problem, the state decided to introduce housing commercialization programs so as to direct a certain proportion of the individuals' savings to residential construction and to mobilize various work units' initiatives in housing investment. total amount of housing investment  In this way, the  and the rate of residential construction could be  increased.  6.2.3. Similarities and Differences in Housing Policy Justification  Although the circumstances for housing policy reforms vary from each other, the approaches used by the two countries are similar.  Despite the different terminologies  used by housing experts in the two countries to refer to the reform approaches, in essence, both governments  have begun to use market mechanisms to supplement the  weaknesses associated with the administrative mechanisms and for private savings and spending to bear an increasing share of the burden of housing investment which would otherwise fall entirely on state resources.  The main aim of the housing policy reforms  in both countries is to alleviate housing shortages and to significantly improve urban residents'  housing  conditions.  The governments  in both countries  have  established  ambitious housing goals, which appear to be supported by their citizens.  The new  housing systems which combine both the advantages of the administrative mechanism  95 and the market mechanism are considered necessary means to achieve these goals.  6.2.4. Different Starting Points  It is important to note that China and Hungary have very different starting points for the official introduction of the market mechanism.  In Hungary, the private  housing sector has been operating since the establishment of socialism and has actually played an important supplementary role to the state housing sector. housing policy changes,  Prior to the  approximately 50 percent of the annual housing construction  involved private efforts, either financially or physically.  Moreover, a state agency, the  National Saving Bank, had already operated in the housing market, building housing units for sale and providing loans to the individuals for the purchase of houses.  Thus,  in a sense, what the housing policy re-orientation in 1982 really meant was to give official recognition to the role of the private housing sector.  In contrast, there had  been very little individual participation in China's urban housing sector prior to the housing  policy  changes.  The  majority  of  China's  cities  started  their  housing  commercialization programs with little experience in the operation of market mechanisms. The government was trying to create a housing market within the framework of the state's subsidies and controls. newly formulated.  Nearly every aspect of housing commercialization was  Thus, the new housing policy in China implies that a great deal of  ideological, economic, and institutional changes will have to take place in the near future.  It is clear that the further implementation of the new housing policy in China  will not be easy.  6.2.5. More Difficulties for China's Housing Policy Reform  In comparison with the situation in Hungary, China has more severe urban housing problems,  fewer  available  national  resources  and much less  operating and controlling the newly introduced housing market.  experience  in  This would indicate  96 China  is  likely  to  commercialization policy.  have  great  difficulty  in  implementing  the  new  housing  In addition, the rapid urbanization process and the high rate  of population increase make it more difficult for the Chinese government to predict and control increasing urban housing needs.  Furthermore, the  recent reform of urban  enterprise management systems and the price reforms have led to many new urban problems such as unemployment, inflation and speculation with scarce goods. factors will significantly affect the implementation of the new housing policy.  All these In view  of these difficulties facing the Chinese government, it was a wise decision to undertake the experimental housing commercialization programs and to implement the new housing policy in an incremental fashion.  6.3. What Can China Learn from Hungary? Based on the examination of housing problems and housing policy changes in Hungary and China, there are three aspects of Hungary's experience which are relevant to China. First,  although it is  generally  true that each country can learn from the  experience  of other countries, each country is characterized by unique contexts and  situations.  Hungary's government started to introduce the new housing policy under  very different circumstances from those in China.  Therefore, it is important to examine  Hungary's specific housing approaches within their context if China intends to take any similar approaches.  This notion deserves attention from those who like to refer loosely  to the experience of the Eastern European socialist countries as a way of justifying the Chinese government's housing policy. Second, it  should be  noted  that in Hungary the  expansion  of the market  mechanism has resulted in the reduction of housing inequalities in terms of the financial burden shouldered by different  social groups.  However, it has also generated new  housing inequalities in terms of housing consumption.  The higher income groups are  97 able to satisfy their housing demands in the housing market.  Conversely, the lower  income groups find it even more difficult to obtain dwellings because the price of market housing has increased and at the same time the state has reduced its total amount  of  national  investment  in  residential  construction.  This  consequence  of  Hungary's housing changes should be looked into very seriously by China's decision makers and housing experts.  In order for China to introduce housing commercialization  programs successfully, it is essential that the Chinese government continues to commit sufficient resources to residential construction and devote special attention to the lower income and disadvantaged groups in society. Third, one of Szelenyi's criticisms is that the National Saving Bank in Hungary has not been able to function effectively in the housing market (1983, p.90).  However,  he does not provide any in depth explanation as to why the NSB has not worked well. It is apparent that establishing an effective banking system in China to help urban citizens manage their savings toward buying a house is an important element of the policy of housing commercialization.  Therefore, further research on aspects concerning  the structure and operation of the National Saving Bank in Hungary would benefit the implementation of China's policy of housing commercialization.  98  C H A P T E R 7. SUMMARY  A N D CONCLUSION  7.1. Review of Hypotheses and Conclusion  Four hypotheses were articulated at the beginning of this paper.  This section  reviews these hypotheses based on the previous analyses of Hungary's and China's urban housing policies and problems. 1. Hungary  Perennial are  housing  evidence  that  problems  and housing  previous  socialist  development  housing  in  policies  China have  and been  ineffective.  The analyses presented in this research support this hypothesis.  Viewing housing  as a pure public good and as a "non-productive" sector in the previous housing policy framework in both Hungary and China, the governments did not committ sufficient resources to residential construction. greater impetus  By the time both countries decided to devote  to housing investment,  urban housing problems and the concomitant  social and economic problems had already become very intense. increasingly greater efforts persist  and the  significantly.  In  housing addition,  Despite the states'  in residential construction, many urban housing problems conditions the  of  social  many problems  urban such  residents as  have  housing  not improved  inequalities  and  corruption among housing officials involved in housing distribution suggest that various weaknesses associated with the previous housing policies exist. 2.  Housing commercialization as a major element of new housing policies  has both positive and negative impacts on equality of housing provision.  99 Based on the examination of changes in Hungary's housing policy, this research suggests that while the implementation of new housing policies has resulted in the reduction of inequalities in terms of financial burdens shouldered by different social groups, the inequalities, in terms of housing consumption by different social groups, are increasing. positive  Therefore, the policy of housing commercialization in Hungary has both  and  negative  effect  on  equality  of  housing  provision.  In  China,  implementation of the housing commercialization policy is still at an early stage.  the It is,  therefore, too early to make a conclusive statement with respect to this hypothesis. 3.  The policy  of  housing  commercialization  is  a  feasible  improve current urban housing conditions and to rationalize the  approach to  housing system  in China.  The research indicates that there is sufficient  evidence  for both the Chinese  government and housing experts to conclude that the policy of housing commercialization is a feasible approach to improving current urban housing conditions and to rationalizing the housing system.  However, the policy of housing commercialization requires radical  changes to many political, social and economic systems which have prevailed for nearly forty years.  Therefore, it will take a long term effort for China to develop a more  rational and effective urban housing system. 4.  The lessons  learned through  housing  policy reform in Hungary  are  valuable to the formation and implementation of housing policy in China.  The research has  identified  some lessons experienced  Hungary's housing policy reform that deserve However, due to the  lack of sufficient  Hungary's housing policy changes, examination of those valuable lessons.  the  attention  in the process  of the  of China's government.  literature pertaining to  specific  aspects of  the research has been unable to make a close  1 0 0  7.2. Recommendations for the Implementation of China's New Housing Policy  In order to ensure an optimum outcome for China's housing commercialization policy, continuous  efforts  in improving various aspects of the policy are necessary.  Based on this comparative study, the following five aspects regarding the implementation of the commercialization policy in China are recommended. First, it is suggested by some that as more financial resources of individuals are absorbed into residential construction, the state would be able to gradually reduce its share of housing investment.  This theory appears to be unsound because China is still  a very poor country and its urban living conditions are still very low in comparison with those in the  developed  countries.  The resolution of urban housing problems  requires a continuous and broad ranging effort rather than a single action or program. It is understandable that the state needs more resources to invest in the industrial and agricultural sectors.  But it must be remembered that the development of the housing  sector can also contribute to economic growth and the accumulation of national wealth. Therefore, it is important that the state continue to allocate a reasonable proportion of national resources towards the improvement of housing and related services. Second, Hungary's experiences, as well as those in capitalist economies, suggest that a well developed housing market could address the housing requirements of higher income residents but could fail to adequately address the housing problems of those with lower incomes.  Previously, socialist countries intended to provide all population groups,  regardless of their social status and incomes, with better quality housing by means of administrative approaches. achieve this goal.  However, most socialist countries have so far been unable to  Therefore, it is clear that neither a pure market approach nor a  pure administrative approach can successfully needs.  satisfy  all of the population's housing  By introducing the market mechanism into the socialist housing economy, the  Chinese government  hopes to ease housing shortages,  to rationalize the process of  housing distribution and eventually to provide good and adequate housing to all people.  101 If the Chinese government intends to improve living conditions for all and not just those who are better-off and more "valuable" citizens, it is important that the policy of housing commercialization should include a set of effective approaches aimed at the population groups with lower social status and lower incomes. Third, in comparison with the development of the market housing sector in the capitalist economy, the housing sector in the socialist economy is still at an infant stage.  Marxist theory, which in China is still firmly considered the principal guideline  of socialist construction, does not outline in any detail the framework for the socialist housing economy.  Thus, the development  of the  socialist  housing economy has to  depend largely on experiments with different policy alternatives.  Also, it is important  for the socialist countries to learn from each other and to experiment with some approaches which have long been employed in the capitalist economy.  Those methods  that have proven effective in the capitalist economy may not be applicable in the socialist economy, but this can only be determined through scientific assessment and experiment.  It is self-deceiving to label whatever originated from the capitalist economy  incompatible with the socialist economy.  Studies on the pros and cons of housing  systems in the capitalist economy are of special significance to the implementation of housing commercialization in China. Fourth, the first housing commercialization programs need to be reviewed and monitored  closely  implementation.  in  order  to  provide  important  Continuous program evaluation  housing policy and programs.  is  lessons  for  subsequent  program  required to inform and improve  In this way, problems that arise in the process of  implementing the housing commercialization policy can hopefully be detected and stopped promptly before they become severe and widespread. Fifth, commercialization of housing in urban areas requires systematic research and a comprehensive plan because it involves the participation of various government departments,  work units  and individuals.  The approach of  "experiment,  feedback,  102 correction" seems insufficient for such a complex issue. relevant  factors  such  as  the  wage,  Macro research on all the  banking, financing,  housing  management  and  construction systems, to list only a few, should be conducted. To  conclude,  it  is  worthwhile  once again  to  emphasize  the  importance of  comparative housing studies between China and other countries, including both socialist and capitalist economies.  The current housing policy reform in China is in many ways  like entering "uncharted waters". other countries. housing problem. easy task.  China can certainly learn from the experiences of  China is unique in the sense of both the scale of the country and its To adequately house one fifth of the world's population is not an  103  B I B L I O G R A P H Y  Ahmed, Rafeeuddin Nations.  (1988),  Housing  and  Economic  Adjustment,  New  York:  United  Andrzejewski, A. (1967), "Housing Policy and Housing-system Models in Some Socialist Countries", Chapter 12 of The Economic Problem of Housing edited by A. A. Nevitt, London: Macmillan.  Ash, Joan (1986), "International Experience of the Improvement of Post-war Housing Review, Vol. 35, No. 2, March-April, pp.46-48.  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