Affordable and People-centered Housing Policy of Laiwu City

Background Information

Like many other cities in China, Laiwu city has its fair share of low income families who cannot afford to rent or own their houses, even with favorable mortgage terms and financial incentives for developers. Although Laiwu has been experiencing rapid economic development and many people have been lifted out of poverty, it is nonetheless the responsibility of the city to ensure that the benefits of rapid growth accrue to all, especially the most vulnerable segments of the population. To do so, Laiwu decided in 2006 to establish and implement a new affordable housing policy which tries to overcome past shortcomings while providing a new people-centered governance approach.

Goals of the Initiative

In 2006 there were 9,250 low-income households that had housing problems in the urban area and a large number of migrant workers and farmers living in the city were also living in sub-standard housing. As housing is a social determinant for, inter alia, health, education and social cohesion, clearly something had to be done to avoid exacerbating social exclusion and conflict. This led the Government of Laiwu to revise its housing policy and practices and to put public subsidies to good use. The purpose of this new policy is to provide low-income citizens with more than just bare minimum housing but, more fundamentally, to provide them with the right to choose their housing solution. It does so through the following changes:

•Rationalizing the subsidy system: Previous housing policies involved a wide range of grants, subsidies and tax holidays focusing on the supply side. Thus many hidden subsidies were given to real estate developers to build affordable housing units resulting in widespread malpractice. The first change in the new policy was to consolidate all grants, subsidies, concessions and tax breaks into a single Fund. This enabled the local government to ascertain the total amount of subsidies that have been used and where those subsidies ended up. It also enables the government to leverage different types of resources into one single disbursement system thus reducing transaction costs.

•Empowering people: The new policy distributes the funds to households in need for the rental or purchase of their house solution of choice. This is a revolutionary practice in China as, to date, subsidies have been given to “bricks and mortar” rather than to people and processes. On the economic side, this new policy stimulates demand rather than supply and thus reduces distortions in the housing market. Most importantly however the new policy enhances the dignity of low-income households by empowering them to become legitimate renters, buyers and home owners. Eligible households are no longer bound by restrictions regarding size, location and level of amenities; nor are they subject to negative discrimination in terms of access to housing. While the initial amount may be fixed, they are free to leverage that amount with their own willingness to pay which was not possible in previous systems.

•Improving governance: The effectiveness of the new policy depends on transparency and accountability. For this reason a whole system of clear eligibility criteria, strict controls, compliance procedures, and checks and balances have been put into place within an overall framework of public access to information.

Innovation for the Initiative

The most innovative aspect of Laiwu’s affordable housing policy lies in the business model that underscores the new housing policy. The latter can be considered as a transformative change in the current Chinese context. Instead of producing subsidized housing which ends up either becoming sub-standard housing or in the wrong hands, resources are leveraged and pooled to empower low-income families to rent or buy their houses on the market. It brings about very different social and economic outcomes. From the social side, low-income families no longer feel like second-class citizens, forced to live in “ghettos of the poor” with all the social stigmas that come with it. From the economic side, the subsidies or funds are used to create effective demand rather than go into a never-ending “black hole” of sub-standard housing estates or incentives to real estate developers that are subject to misuse.  

Outcomes and Assessments

Transparency in all transactions and all payment of benefits to households is critical to the sustainability and credibility of the system. For this reason there are multiple checks and balances to ensure compliance and well-established procedures and time frames for applications, verification and payment. All of these steps are designed to ensure that the general public, the beneficiaries and the public administration are all aware of what is involved and are informed every step of the way. Thus applications are open to public scrutiny and are publicized and all six departments responsible for inspections are aligned and work together to ensure timely approval and disbursement of funds as well as rigorous compliance. All records of transactions are kept in hand and digital formats.