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The development of welfare(indemnificatory)

housing in UK and China

Introduction

Housing need is one of the most important basic living requirements of a modern
society. Everyone has the right to expect a comfortable house in the great possibility
of affordable. However, the gap between rich and poor exist in every society, with the
social development and economical changing, poor people even cannot afford a
practical housing. In that case, government should take the responsibility to achieve
the requirement of citizens. In the UK, welfare housing policy plays the role that offer
housing supply to different people in different position, this is a crucial aspect in UK
social policy, it helps the government to stabilize the society and balance the gap
between rich and poor. In China, the welfare housing system started later than other
countries, but with its rapidly development, government and the society start to pay
more attention on it.

Housing development and housing policy in China has been walked through a series
of changes and reforms, especially after the Reform and Opening up Policy in the
1980s. After the commercialization and marketization, the housing market in China
shows its unstoppable trend, and its also produced a series of housing need problem.
Under this situation, the welfare housing issue became a social hot potato; it is also
called indemnificatory housing policy in China.

As the world’s first welfare state, the UK is obviously the most powerful welfare
housing empire. The welfare system in UK is one of the most mature systems. Since
the Second World War, the UK established a whole social security housing system,
mainly organized by the government. The welfare housing supply in UK in some
extent can be seen as the world’s most successful one. It is a perfect social security
system, effectively change the living condition of the bottom level in the British
society, and no matter how the politics changing in UK, the government all focus on
develop the welfare housing system, to make it better and better.
This essay will introduce the basic situation and historical changes in both two
countries, and I will also discuss recent development of UK and China, state some
differences and similarities in both country. The essay is mainly in order to present
my understanding of recent changes in two countries and compare the welfare
(indemnificatory) housing system in these two different types of society.

Structure and History Review

China's housing reform was started based on the original system. Since the 1950s,
China has gradually established a national housing supply system, the Government
has fully undertaken the responsibility to provide housing for the urban residents, and
housing construction became a part of national capital construction projects. Local
authority and department get housing budget from the government’s housing
investment, then build houses and provide it to the employees. Housing is considered
one of the rights and welfare of employees. City residents receive houses from local
authority and department just by paying only a nominal rent. The national supply of
housing in the public housing system created many problems, including poor housing,
limited living space, poor quality housing, lack of maintenance of housing, and most
important, it didn’t covered all the Chinese citizens.

At the late 70s of last century, the government is unable to provide adequate housing
to citizens and the society was fall into a serious housing crisis. In that case, the
Government started a series of housing reform. The main strategy is to implement the
commercialization and privatization of housing, and develop the real estate market.
However, 20 years of housing reform presents a remarkable feature: slow
development of housing reform process and unstable relevant policy.

Historical speaking, the evolution of China's indemnificatory housing system can be


divided into two periods, namely the establishment of P.R.C (1949) to the period
before the housing reform and housing system reform to the present.

The first phase consists of the following two periods: First, from the pluralistic
structure to the establishment of welfare housing distribution system (1949 to 1956).
In this period, Housing system is not a real sense of housing indemnificatory system,
it is just a transitional policy measures; The second period is after the establishment of
welfare housing distribution to the late of 1970s (the reform of housing system).
However, with the changing of economic environment and social development, all the
weak point of this system gradually exposed.

The second phase includes these following two periods: First, from the late 70s to
1997, that is, from the housing system reform to the housing marketization; Second,
after 1998 till present.

These developments has produced a great influence on China’s social policy, the
indemnificatory housing system is also gradually became a hotspot of government’s
attention. Currently, the indemnificatory housing system is mainly constitute by three
part: the low-rent housing system, affordable housing system (economical housing)
and housing accumulation fund. These three systems focus on different objects by
different standards, in order to achieve the right to housing security of citizens.

1. Housing accumulation fund is a specific saving that used to serve people who
work in different social organization, it is the state organs, state enterprises,
urban collective enterprises, foreign invested enterprises, urban private
enterprises and other urban enterprises, public institutions, private non-
enterprise units, social organizations and their service workers paid into the
long-term housing savings. (Chen,NP. 2010:229) Housing accumulation fund
is a long-term obligation, social responsibility to the public, it is a also a key
step of housing system reformation. As China's main indemnificatory housing
policy, the accumulation fund policy effectively relieved government’s
pressure on housing issue, meanwhile, it’s stabilized the investment of
housing construction.

2.Affordable housing is a special indemnificatory housing project that already


included in the national housing program. Local government organized Real
Estate Company or housing construction unit to build low-profit housing for
the low-income families. This is an effective way to reach the housing needs
in Chinese society. Meanwhile, because it has a certain ownership, affordable
housing became the most popular indemnificatory housing form in recent
years.

3.Low-rent housing system means that local government or units implement their
housing security responsibility in the housing area, offer allowance and low
price apartment to the middle and low-incomes. The system offers normal
apartment as indemnificatory housing for objective families ensure their social
minimum standard of living.

Although the system was basically established, but the huge population in urban and
suburban area and its rapidly growing has provided an irresistible force to the housing
market. The strong housing demand energized the real estate market in China,
Various sizes and types of residential real estate companies and communities have
mushroomed in the period. This is absolutely a powerful driving force of the free
market progress in China. However, by facing the expensive estate and its fast grows,
a lot of ordinary people caught up in a weak position. Housing became a realistic
problem for the vast majority of people. To solve this serious social problem, what
adjustments should Chinese government make to deal with the situation? UK housing
system is an example of a valuable reference.

Although UK is a country advocated free market economy, but the government


played a positive role in the welfare housing area. Which to some extent eased the
pressure of society. Since the establishment of the ‘Welfare State’, UK government is
keep trying to reduce the problem that caused by housing issue. After the Second
World War, in order to solve the housing shortage problem, UK government, as the
main sector of the housing supply, conducted a large-scale reform of housing
construction. In the late of 1940s and the whole 1950s, local authority took the main
responsibility of housing construction, and complete the total amount over the same
period to 77.6% and 64.3%. It should be said, in quite a long time after the war, UK
government assumed the main task of housing construction. It is absolutely the most
important role in the post-war time. While in the 1960s, private enterprises gradually
replaced the local authority, but in the 1960s and 1970s, the housing supplied by
government still accounts for about half of the total. Nowadays although new
government called to cut the welfare housing benefit, but the it still having a huge
number of expenditure on provide housing benefit to the public, the chart below
(chart 1.) shows that the housing benefit expenditure is the third largest outcome of
the British government in 2010-2011.

Chart 1: Budgeted total net current expenditure by service 2010-11

Generally speaking, UK housing system including three main providers: local


authority, private enterprise and registered social landlords. After the Second World
War, the UK government made a huge contribution in the housing area to solve the
housing problem. Local authority mainly undertaken the mission which was definitely
the most important provider in those decades.

After the post-war period, with the privatization and the rising of private housing
market, the private enterprise gradually replaced the local authority in the social
housing system. Some of private company and organization provide welfare housing
service to the low-incomes and unemployed. In 2004, the private enterprise completed
the mission of 90% part in 200,000 new social houses. After that the social welfare
housing became relay on the private enterprise, although some funding are still
provided by government. Besides, the efforts made by the registered landlords was
increasingly important, it also aims to provide housing resources to low-income and
special needs group, the registered landlords plays an important role in the
particularly area.

The changing of the role in UK tells an evolution from government’s fully regulation
to privatization. After these reforms, the three sectors became a powerful supply chain
and these different providers made the system more flexible and practical. In
particular, the competition between public and private housing supply spurred the
vigor of social housing system and pushed it delivered well to public. The system
works well until present day.

Recent Development

Based on the strong demand, Chinese government pays more and more attention on
the construction of indemnificatory housing, China will enter a large-scale
construction of indemnificatory housing era. From the development process of real
estate market in most developed countries, at the stage of shortage in total housing
supply, Government needs to expand the construction of indemnificatory housing to
ease the contradiction between supply and demand. For example, in 1946-1969, the
UK government has a large-scale construction of social welfare Housing, and provide
benefit to private housing construction. The total of welfare houses was once reached
58% in all social housing. Although the housing reform in China has been carried out
more than ten years, but construction of indemnificatory housing has lagged behind
the commercial houses, the housing problems of low-income groups cannot be
resolved for a long time.

For the consideration of rising living condition and the indemnificatory housing in
stimulating effect on the economy, the Chinese government will start a massive
construction of indemnificatory housing, then China will enter a large-scale
construction of indemnificatory housing era. In 2011, Ministry of Construction
announced that China will build 10 million units of indemnificatory housing, the
number of construction area is the total of all residential transactions in 2010, the
proportion will reach about 20% in the whole housing market. (Chart 2.)The dual-
track system of housing will gradually formed, and it will bring an evolution to the
structure of the housing market. Most of cities in China will plan a amount of more
than half of all residential land for the indemnificatory housing construction, some
will more than 70%. (Zhang,S. 2010)

Chart 2. 2008-2011 construction of indemnificatory housing in China

With the launching of large-scale indemnificatory housing construction, the funding


gradually became a huge problem. The construction cannot only rely on government
financial expenditure, it will become a huge pressure to Chinese government.

By analyzing the current situation of China, there are huge number of liquidity exist
in the market, and organizations or companies cannot realize its true value, as long as
the government acted the relevant preferential policies and guide project. As a result,
a lot of private capital will enter the field to provide affordable housing to people.
This is a copy of private sector in the UK’s housing system, and it also works well in
China.

The traditional housing construction funds were mainly sourced from which have
been listed as follows:
• Local government budgets
• Housing accumulation fund
• 10% of Land Use Tax (net of expenses)
• The central government grants and net income from low-rent housing
• Other funding sources may include bank loans, equity and real estate developers.

To solve the funding problem, the central government and some local governments
have taken various means of indemnificatory housing construction for financial
support:

• May 2010, the State Council suggested that private organizations and companies
could get themselves involved in the construction and reconstruction of
indemnificatory housing, and central government will provide benefit to entities that
play parts in the construction, as far as their contributions are concerned.
• June 2010, Ministry of Construction, Ministry of Land and Resources, CBRC
(China Banking Regulatory Commission) and other 7 ministries jointly issued a
new estate policy to improve the private sector in construction of indemnificatory
housing.
• Currently, the central government encourages foreign capital to join the
construction process.

The funding for UK welfare housing is more abundant than China, and the system
itself is also more mature than that in China.

The funding of Britain’s social housing is a win-win issue, which means, every pay
and return is a two-way investment. It becomes a financial cycle and helps the
housing polices better delivery to the general public. In that case, the UK government
keeps raising the expenditure on the social welfare housing.

The three different sectors in the welfare housing system have strong relationship in
terms of financing: a very crucial and positive policy that government provides is the
‘state aid’. It mainly provides financial support and any other benefits to the private
housing providers, such as private enterprises and registered landlords, in order to
encourage their willingness of housing construction. For example, the housing
association is a typical example under the state aid. It has been expended wildly since
the 20th century, and now it is in charge of more than 2,000,000 welfare-housing
resources in the UK.

The re-formulation of the Housing Corporation’s role in 1974 pioneered the idea of a
national body, close to but separate from central government, with responsibility for
funding and regulating independent service delivery agencies. This is now familiar in
the private utilities and some parts of the welfare state but was a novelty at the time.

The reason why housing association became so important is that government offers
most of the financial support to it and introduces a huge number of housing projects to
housing association. Thus, it can be expanded as powerful as possible; besides, the
private housing provider pays taxes to the national government from their profit, so
that the government could budget to provide better welfare.

Another idea pioneered within housing reform was to transfer of municipal services to
the independent not-for-profit sector. This again built on the housing association
model and probably would not have developed in the way that it did without that
model.

In the early 1980s the government experimented with selling individual estates, but it
was in direct response to government policy in 1988, that a number of local
authorities began to look at the possibilities of transferring the whole of their own
housing stocks to newly established associations.

Transfer offered an escape from this situation, while keeping the social rented sector
intact. Transfer also opened up the opportunity for the local authority to realize a
capital receipt on the sale, and to guarantee to tenants not only that their rents would
not rise steeply but that they would get certain repairs and improvements done.

Stock transfer began as a way of getting round government policy, but was soon taken
up by government and turned into a mainstream policy. By the year of 2002, over
700,000 dwellings had been transferred by over 120 local authorities, with the
government strongly committed to the principle of separation of the strategic role of
local authorities from the operational management of housing services.

Problem in Recent Development

As society's needs for housing boomed, indemnificatory housing in China has become
an important factor. As this, the Government re-increases the construction of
indemnificatory housing, particularly in 2010; the state introduced a number of policy
measures, from the financial, taxation, land and other aspects to strengthen the
supports of indemnificatory housing.

Foreign welfare housing development experience also shows that with the rapid rise
in house prices, the society will face a serious period of growing demand-supply
conflict, welfare housing should assume the role of livelihood security. Therefore, the
next few years, the number of indemnificatory housing in China should continue
increase. The director of Ministry of Housing Construction Policy Research Center
Chen Huai pointed out that China will gradually establish a fledged housing security
system, according to the current rate of development, China will solve the Housing
problem in 3 to 5 years. However, there are still many problem comes up with it.

1.Corruption in current indemnificatory housing system

The problem of corruption truly exists in the field of indemnificatory housing,


especially in affordable housing area. The affordable housing is different with
other welfare housing it has housing tenures which means in the there is dealing
existing in the process chain, so the corruption comes along.

In 1998 the State Council states: Economically affordable housing issued by the
state investment plan, developed by the real estate company and allow sales to the
public, the general land using is adopt by administrative allocation, organizations
and companies could obtain the using rights by open tender. Besides, the
government just charge half of all approved, but the developer shouldn’t gain
more than 3% of the profits, then the sales price need to follow government
guidance. The process of affordable housing construction related to government
department, private developer and public. Therefore, in the whole construction
chain, private developer may bribe to related department to get the rights of land
using for their own profit; some purchasers may bribe as well for get the housing;
as a result, a dirty informal rules will appear in the system.

It can be seen that the formation of affordable housing programs is following these
steps: first, the state act investment plan; Secondly, government allocate land by
using the measures of administrative allocation or public bidding; then, real estate
developer in charge of the construction; finally, real estate under developer sales
the housing to public by following the government business guidance.

In this process, after the investment plan, the administration right transferred to the
local government. No matter by administrative allocation or public bidding, the
final decision of land use rights will made by the local government. The interests
of developers were involved in this session. Although the profit of affordable
housing is way much less than normal commercial housing, but the government
offers benefits made the private developer think this is a good way of business.
The resources are limited, but for realize maximum benefit, the developer may
bribe to related to related department.

Besides, once the affordable housing proceeds to the trading stage, because of its
advantages in price and Chinese tradition of chasing property tenures. These
reasons will inevitably lead to a shortage situation. Families under the same
conditions want to obtain the affordable housing may have to rely on the latent
rules. Then the corruption shows up again.

According to the current situation, the phenomenon is get worse in recent


development. The affordable housing in China was born with the purpose of
reducing the gap between demand and supply, but it has typical Chinese
characteristic. In the period of housing developing, a mature system is not fully
realized yet, some individuals or departments owns privilege in some particular
area, the corruption is hard to stop.
2.lacking in rigorous verified mechanism

According to the policy, affordable housing can only be sold to low-income


families. However, the current verify mechanism is actually a mess, in fact, a
considerable portion of affordable housing achievers are not in the low-income
families, but high-income families. A website survey of Beijing 2004 shows that
about 16% of affordable housing sold to high income earners, meanwhile some
earners even owns more than one affordable apartment. This is clearly a violation
of the original intention of this policy. Few reports pointed that some of the so-
called “affordable housing user” even has high-class vehicle. This situation is
mainly because there is lots of loopholes exist in the current verify mechanism.

As China’s study model, UK is also facing some difficulty issues. Unlike China,
the problem in UK welfare housing area is not some foundation stage issue.

UK also has some funding problem. Financial problem is not a big unsolvable
problem in UK, but after the global economic downturn also produced some negative
impact on housing funding. Aside from private funding, the grant for social housing
from the government is also inadequate. The new conservative government suggests
cutting the housing benefit. It is recently known that the budget of social housing in
UK will be cut by over 50 per cent in the Spending Review (HM TREASURY,
2010:48). The Report says that the budget of Department of Community and Local
Authority, which is in charge of social housing, will be reduced by 33 per cent. The
Chartered Institute of Housing commented that the needs of social housing would not
be addressed from 2011 because public funding is short, which makes housing
associations less capable to finance the social housing. Both unfriendly climate for
business and decreasing government support are all negative points to the social
housing funding. It is claimed by Green and Moss (2009:65) that government funding
is needed especially in the middle of economic decline when private financing is not
working.

Besides the long history welfare housing system also produce some social problem,
For example, there are stigma issue exists in social housing. Ordinary people think
that persons who live in social housing are normally unemployed, disabilities or some
one at the bottom of society. This long-term mindset gradually became a tainted glass.
A recent survey carried out by Fast Track (2010) shows that 72.9 per cent of the 299
people surveyed thought there was a great deal of stigma attached to living in a
council home compared with the private home. This notion makes the social housing
area be excluded from general people. It is argued by Hastings (2004:15) that stigma
afflicts severely social housing residents.

Conclusion

In this essay, I analyzed the problem in current development with my understanding.


UK and China are two different type of society with different history, but under the
new challenge by the world development and the fast growing population, they both
have same difficult issue to face, such as the financial problem and a serious of social
problem. Nowadays, following the rapidly development of modernization and
economy, all the countries are facing an unprecedented pressure of the hardware
construction. China is now at a crucial transition period, the Government must pay
more attention to the development of indemnificatory housing in order to keep up
with the pace of economic development, so that the system could run stably in the
transition.

At present, the constraints of the indemnificatory housing development is the funding


problem, but all the signs shows that the central government is keep working on better
policies, tax incentives, preferential interest rates, financial innovation and other
means to raise the financial support on indemnificatory housing construction. On the
other hand, the government needs to reduce the corruption and bribe phenomena in
the welfare housing delivery. Meanwhile, to complete a mature verifies mechanism is
also very important to the development. In the housing area, China still has so many
things need to learn from western countries.
Reference

Chen,NP. (2010), “A Discuss about China’s Welfare Housing system”, Shanxi


Architecture, Vol.36, Oct. 2010

Zhang, S. (2010), “ The Report of Indemnificatory Housing Development in


China”[online]
http://wenku.baidu.com/view/c98a0d28647d27284b735104.html

Hastings, A. (2004), “Stigma and Social Housing Estate: Beyond Pathological


Explanations”, Jounal of Housing and the Built Environment, vol.19, 2004

HM TREASURY (2010), Spending Review 2010 [online].


http://cdn.hm-treasury.gov.uk/sr2010_completereport.pdf

Green, S and Moss, J (2009), Principles for Social Housing Reform, London: Local
Research

Fast Track (2010), “Majority of Brits believe the Government should be doing
more to resolve Britain's housing crisis” [online]
http://www.fasttrak.co.uk/Press.aspx/Home