Introduction

The State Council issued the "Guiding Opinions on Planning and Constructing Affordable Housing" ("Document No. 14") in August 2023, which pointed out the need to "use reform and innovation methods to plan and construct affordable housing in large cities," raising the status of affordable housing to an unprecedented level. The Central Political Bureau meeting held on April 30, 2024, also indicated the need to coordinate the study and digestion of existing housing and optimize the policy measures for incremental housing, to quickly build a new model for real estate development, and to promote high-quality development of the real estate industry. Based on this, this article focuses on three aspects: enhancing the utilization of idle housing and land resources through the dual drive of "renting + selling," consolidating the supply of affordable housing with city-specific policies, and leading policy and financial services to protect the construction of affordable housing. It provides decision-making references for steadily increasing financial support for affordable housing construction, achieving a virtuous cycle in the real estate industry, and promoting healthy economic growth.

Steady Increase in Financial Support for Affordable Housing Construction

The Central Political Bureau meeting held on April 30, 2024, pointed out the need to combine new changes in the supply and demand relationship of the real estate market and the new expectations of the people for high-quality housing. It emphasized the importance of coordinating the study and digestion of existing housing and optimizing the policy measures for incremental housing, to quickly build a new model for real estate development, and to promote high-quality development of the real estate industry. Over the past period, relevant national departments and many high-energy cities have innovated in aspects such as "renewing old for new," "old for new," converting part of the existing commercial housing into affordable rental housing for "digesting existing stock," and adopting a "market + security" dual-track model for "optimizing incremental" and "people determine housing, housing determines land, and coordinate the supply of residential land with 'market + security'."

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01

"Renting + Selling" Dual Drive

Enhancing the Utilization of Idle Housing and Land Resources

With the development of the economy and society, the form, structure, and characteristics of China's real estate market are constantly evolving. Although the government has actively regulated and standardized the residential market at different stages, proposing policies such as "public rental housing" and "low-rent housing" to ensure the housing needs of ordinary people, especially low-income groups; in practice, compared with the large-scale population inflow brought by urbanization, especially in high-tier cities, the supply of affordable housing is still lagging, and there is a large gap in the housing needs of a large number of newcomers. Survey data from the Ministry of Housing and Urban-Rural Development show that 70% of new citizens and young people in large cities rely on renting to solve their housing problems, and in the existing housing system, commercial housing supply is the mainstay. By the end of 2022, public rental housing, affordable rental housing, shared ownership housing, and other types of affordable housing only accounted for about 5%, and there is a significant supply shortage of affordable housing. Against this backdrop, to achieve the dual goals of "having a place to live" for the newly added urban population and stable economic development, the State Council issued the "Guiding Opinions on Planning and Constructing Affordable Housing" (hereinafter referred to as "Document No. 14") in August 2023.

In terms of renting affordable housing, in addition to the original public rental housing and low-rent housing protection system, the "protected rental housing" for new citizens and young people is the current focus. During the "14th Five-Year Plan" period, the country originally planned to raise and build 8.7 million sets of affordable rental housing. However, with the acceleration of population inflow in some high-tier cities in practice and the central government's increasing emphasis on affordable housing construction, some cities have begun to dynamically adjust their plans to moderately increase supply, such as Shenzhen increasing the original plan of 540,000 sets to 740,000 sets, and Chengdu increasing the original plan of 250,000 sets to 300,000 sets, etc. By the end of 2023, according to data from the National Bureau of Statistics, the country has completed the construction and collection of about 5.73 million sets, achieving 65.9% of the original plan during the "14th Five-Year Plan" period.In the aspect of sale-type affordable housing, the "Document No. 14" has established the break-even and slightly profitable sale rules of "land cost + construction cost + profit" and the operational management mechanism of "closed management, not allowed to be traded on the market, and idle transfers shall be repurchased by the government". This mainly addresses the housing purchase needs of several groups of people, including salaried workers, urban-introduced scientific and technical personnel, teachers, and medical staff. In terms of overall scale, considering that the concept of sale-type affordable housing was proposed relatively late, the planning for this type of affordable housing in various regions is still in the stage of policy exploration and pilot implementation. As of now, according to incomplete statistics, more than 130,000 sets of sale-type affordable housing in key cities across the country have entered the construction phase. In terms of quantity, Fuzhou plans to build the most sets in 2024, with 12,400 sets; the four first-tier cities of Beijing, Shanghai, Guangzhou, and Shenzhen, as well as Xi'an, are all around 10,000 sets; other second-tier and third-tier cities are all between 2,000 and 4,000 sets. It is expected that subsequent cities will introduce corresponding specific plans, and the scale proportion of sale-type affordable housing is expected to increase.

Looking at the construction methods, the channels for the preparation of affordable housing are divided into two types: new construction and stock revitalization. New construction refers to the construction of a certain proportion of affordable housing in the newly added construction land, where new commercial housing can be built; other preparation channels are all stock revitalization, including five methods: self-owned land of enterprises and institutions, collective-operated construction land, supporting land of industrial parks, non-residential stock houses, and the reconstruction of existing residential houses. It is not difficult to see that the construction of affordable housing will have a significant effect on revitalizing idle houses and low-efficiency land resources.

According to the "Document No. 14" planning for the supply of affordable housing, it is necessary to first determine the land for affordable housing, mainly by changing the land use of the original idle and inefficient industrial, commercial, and office land, and then completing the land supply through the allocation mode without paying the land price. Allowing cities with high inventory to rebuild existing commercial housing as affordable housing has the effect of killing two birds with one stone: it can not only meet the supply of affordable housing and cover the needs of new citizens, but also eliminate the inventory of new houses and alleviate the current commercial housing market pressure. In addition, the completed projects will implement preferential policies for affordable housing, such as water, electricity, and gas prices implementing civilian standards, and tax support such as reduced value-added tax and property tax.

02

Policy implementation according to the city, consolidating the supply of affordable housing

Taking first-tier cities and Chengdu, Chongqing as examples

(1) First-tier cities: Key supply areas for rental affordable housing

Compared with traditional affordable housing categories such as low-rent housing, affordable housing, public rental housing, and shared ownership housing, which appeared earlier and mainly meet the housing needs of the registered population, the concept of rental affordable housing (hereinafter referred to as "rental housing") can be traced back to 2015. At the end of that year, the Central Economic Work Conference held proposed to promote housing system reform starting from "satisfying new citizens" and expanding public rental housing to non-registered populations.

The Central Economic Work Conference in 2020 further clarified the requirement to "attach great importance to the construction of rental affordable housing" and regarded it as an important measure to solve the prominent housing problems in large cities. It can be said that rental affordable housing has officially become an important part of China's housing security system. In July 2021, the "Opinions of the General Office of the State Council on Accelerating the Development of Rental Affordable Housing" (hereinafter referred to as "Document No. 22") pointed out that the housing difficulties of groups such as new citizens and young people are still relatively prominent, and it is necessary to accelerate the improvement of the housing security system with public rental housing, rental affordable housing, and shared ownership housing as the main body. In addition to further clarifying and improving the top-level design of the affordable housing system, "Document No. 22" also detailed the standards and requirements for the specific construction of rental affordable housing. For example, rental affordable housing should mainly be small apartment types with a construction area of less than 70 square meters, and the rent level should be lower than the rent of market-oriented rental housing in the same area and quality.The original intention of the design of the affordable rental housing system is to address the housing issues of new citizens and young people in key cities with net population inflow. Naturally, first-tier cities with large net population inflow, considerable scale of new citizens and young people, and strong demand for housing rentals are key areas to meet the supply of affordable rental cities.

(II) Chengdu and Chongqing: Multi-level Affordable Housing Construction and Supply

Chengdu and Chongqing are the central cities of China's fourth economic pole and also occupy two seats among the four most populous cities in the country. They have important exploratory value and indicative significance for affordable housing construction in China, especially in second-tier cities. Taking Chongqing as an example, as the only direct-controlled municipality in the west, it has always had the advantage of policy piloting in the real estate field. As early as during the "Twelfth Five-Year Plan" and "Thirteenth Five-Year Plan" periods, Chongqing had already built a large number of public rental housing, providing valuable practical experience for the continuous optimization and reform of the national housing system. According to the data of the seventh national population census, the proportion of urban families in Chongqing renting low-rent housing and public rental housing reached 6.2%, 2.4 percentage points higher than the national average level. This proportion ranks third among the 31 provinces and cities, following Tibet and Yunnan, which have a higher proportion of ethnic minority resettlement projects. As the city with the most inflow of foreign population in China from 2010 to 2022 among central and western cities, Chengdu's real estate marketization process has long been ahead of the national level. It also has an important demonstration role in how to balance the relationship between "market and security" within the housing system in the future.

The primary principle of affordable housing construction is "people-oriented" and "people-housing matching". The scale of affordable housing supply should be adapted to the speed of population inflow. As the central cities of the Chengdu-Chongqing urban agglomeration, from 2010 to 2022, the total population absorption of the two cities reached 6.149 million and 3.286 million respectively, with an increase rate ranking among the top in the country. The huge scale of mobile inflow has given rise to a large number of housing needs. For "new Chengdu people" and "new Chongqing people", renting is still the preferred way of living. (See Figure 1)

By the end of 2023, during the "Fourteenth Five-Year Plan" period, the two cities of Chengdu and Chongqing had respectively accumulated 174,000 and 264,000 affordable rental housing units, completing 58.0% and 66.0% of the plan respectively. In the long term, as an important part of urban public resource service support, affordable housing needs to coordinate the joint influence of policy design, population inflow, and urban development. It needs to dynamically adjust the relationship between top-level design and practical exploration according to time and place in order to ultimately achieve the balance of urban jobs and residence. In terms of policy support, the two places in Chengdu and Chongqing prioritize the use of idle housing and low-efficiency land resources for the construction of affordable housing, including two models: new construction and存量 revitalization. New construction refers to the construction of a certain proportion of affordable housing in the newly added construction land. Other construction methods are all存量 revitalization, including five methods: self-owned land of enterprises and institutions, collective management land for construction, supporting land of industrial parks, non-residential存量 housing, and renovation of existing residential housing. (See Figure 2)

Taking the inclusion of long-term rental apartments in the security system as an example, in recent years, the cases of long-term rental apartment operation brands included in the affordable housing system have emerged like a spring breeze. From a national perspective, data from the ICCRA Housing Rental Industry Research Institute shows that by the end of the second quarter of 2023, about 22.4% of the long-term rental apartments that have been opened nationwide have been included in the local security rental housing, with a total scale of about 192,000 units. By the end of 2023, the top three operators, Vanke Bo Yu, Longhu Guanyu, and China Resources You Chao, have included 102,000, 50,000, and 25,000 long-term rental apartments in the security system, respectively, which has played an important role in helping developers reduce inventory. In addition, the projects included in the security system will bring policy support related to affordable housing, such as the implementation of civilian standards for water, electricity, and gas prices, and tax preferences such as reduced value-added tax and property tax, which will promote and enhance the operation of the project.

03

Government funds lead

Comprehensive financial servicesSafeguarding the Construction of Affordable Housing

Historical data indicates that local finances have been the primary source of funding for the construction of affordable housing, contributing over 95% for an extended period. However, due to the inherent "break-even with minimal profit" nature of affordable housing as a public welfare attribute, whether it is new construction or the renovation of existing stock, the large-scale preparation of affordable housing still requires long-term support from a substantial amount of low-cost funds. We believe that central policy funds and social capital will be key to solving the short-term funding challenges for affordable housing construction. Local governments, as the main departments responsible for construction and operation, should also timely and flexibly use various policy tools to stimulate market vitality in the long run.

(I) Central Policy Funds

1. The central government's affordable housing subsidy funds, which are part of the fiscal plan. From 2022 to 2024, the central government allocated 22.4 billion, 24.7 billion, and 11.9 billion yuan for rental housing security funds, respectively, with an additional 14.18 billion yuan in reward funds in 2024 to subsidize four major areas: housing security, urban village transformation, old community renovation, and shantytown renovation.

2. Affordable housing re-lending. This is also the most important current source of funds for reducing inventory in commercial housing and raising funds for affordable housing. On May 17, 2024, the People's Bank of China announced the establishment of a 300 billion yuan affordable housing re-lending facility with an interest rate of 1.75%. It also merged the 100 billion yuan rental housing loan support plan piloted in some cities in 2023, which will be fully promoted nationwide. The People's Bank will issue re-lending at 60% of the loan principal, which can subsequently drive loans of 500 billion yuan from 21 national banks to support the acquisition of unsold commercial housing for use as rental or sale-type affordable housing.

3. Pledged Supplementary Lending (PSL) and special loans for affordable housing. Since the central bank resumed PSL in December 2023, it has allocated 500 billion yuan (PSL) to support the construction of affordable housing, "emergency and peacetime dual-use" public infrastructure construction, urban village transformation, and other "three major projects." In December 2023, the China Development Bank granted a credit of 202 million yuan to the Shuanglong Xinju affordable housing project in Fuzhou City, marking the successful landing of the country's first sale-type affordable housing development loan. On April 24, 2024, the China Development Bank announced a first loan of 808 million yuan for the Li Cang Jingkou Road affordable housing project in Qingdao City, aiming to support the construction of the first batch of 2,000 sale-type affordable housing units.

4. Special national debt-related financial support. The National Development and Reform Commission stated that it will issue ultra-long-term special national debt for several consecutive years, specifically for the implementation of national major strategic initiatives and the construction of safety capabilities in key areas, focusing on supporting the construction of key fields such as scientific and technological innovation, urban-rural integrated development, regional coordinated development, food and energy security, and high-quality population development. We expect that affordable housing, as an important carrier for urban-rural integrated development, regional coordinated development, and high-quality population development, will receive long-term support from special national debt funds in the future.

(II) Local Financial Instruments and Policy Support

1. Local government special bonds. This has also been the main source of funding for the construction of affordable housing in the past. According to statistics, from 2021 to 2023, the scale of funds used by local governments for affordable housing projects was 624.5 billion yuan, 631.9 billion yuan, and 470.5 billion yuan, respectively. In 2024, the overall direction of special bonds remains unchanged in ten major areas, but the field of affordable housing security has added two new directions: urban village transformation and affordable housing.

2. The premium capital set aside by local governments from land transfer can be used as incremental funds for affordable housing construction. Historically, to prevent the overheating of the real estate market and promote the construction of affordable housing, many provinces and cities across the country, including Jiangsu, Guangdong, and Shandong, have issued relevant details. In the process of land auctions, a portion of the premium funds from the transfer of residential and commercial land is centrally set aside to serve as an incremental source of funds for local affordable housing construction.Thirdly, there is the innovation in operational models. The "rent-first, then sell, with rent and sale linkage" model for affordable housing can be adopted to enhance the stability of project cash flows. Countries and regions such as Singapore, Hong Kong (China), the United Kingdom, Australia, and Canada have introduced housing plans with the "rent-first, then sell" model, allowing homebuyers to first obtain housing through rental and then have the opportunity to purchase the house after meeting certain conditions. In mainland China, provinces and cities including Chongqing, Shenzhen, Shanghai, Dongguan, and Hubei have also made beneficial explorations of this model.

(III) Social Capital

Commercial banks are expected to increase their support for rental housing in the future. On January 5, 2024, the People's Bank of China and the State Financial Regulatory Administration issued the "Opinions on Financial Support for the Development of the Housing Rental Market," pointing out that financial support for the development of the housing rental market should be market-oriented, providing a diversified financial service system for the investment, development, construction, and operation of rental housing, and explicitly proposing favorable policies such as supporting enterprises and institutions to legally and in accordance with regulations purchase a batch of idle existing houses for use as dormitory-type affordable rental housing.

In the future, China's "market + security" dual-wheel driven housing pattern will be more improved, and the strategic importance of affordable housing construction will be further enhanced. Compared with the traditional affordable housing system such as public rental housing and low-rent housing for low-income and disadvantaged groups in the past, the future affordable housing system is expected to be more "inclusive," and the coverage for key groups such as young people and new citizens will be further expanded and strengthened. In particular, governments at all levels can supplement the supply of affordable housing by repurchasing unsold new houses, promoting the inventory of existing second-hand houses, revitalizing and transforming non-residential properties, acquiring idle land projects, and providing affordable housing through construction and sale, to打通 the virtuous cycle between commercial and affordable housing.

We believe that under the policy preferences and guidance, the system should be further improved and perfected, mainly based on government investment and policy funds, supplemented by socialized funds under market guidance, and supported by a comprehensive and multi-channel financial support system, to better increase the efficiency of capital utilization and financial support in investment, financing, and operation. In the medium and long term, efforts should be focused on building a multi-level, multi-subject, and multi-channel real estate financing system,处理好 the relationship between people, land, housing, and money from the source, to ensure that there is security at the low end, support in the middle, and a market at the high end. This approach aims to achieve the direction of real estate development proposed in the report of the 20th National Congress of the Communist Party of China, which is to "accelerate the establishment of a housing system with multi-subject supply, multi-channel security, and the combination of renting and buying," and to "improve people's welfare and quality of life." This will lead to a virtuous cycle in the real estate industry and healthy economic growth, promoting high-quality social development.