Boosting rental home market requires more reforms

By Xia Dan Source:Global Times Published: 2017/8/7 21:53:40

Illustration: Peter C. Espina/GT


The push for simultaneously developing the rental and sales markets for housing has been going well in China, with many relevant policies announced. Nine government bodies including the Ministry of Housing and Urban-Rural Development have recently urged the accelerated development of the rental market in bigger cities that have net population inflows.

The government has designated 12 cities for a pilot program aimed at boosting the country's rental market. Some cities on the list including Guangzhou in South China's Guangdong Province, Zhengzhou in Central China's Henan Province and Hangzhou in East China's Zhejiang Province have already actively responded to the call.

A handful of cities that have yet to be included in the trial program, such as Wuxi and Yangzhou in East China's Jiangsu Province, Jinan in East China's Shandong Province, and Shanghai, have announced their own policies favoring rental housing.

Strong support for the home rental segment is an important aspect of building a long-term oversight mechanism for the housing market. In doing so, China can fill housing supply gaps and improve the chain of consumption that ensures supply at the lower end of the market, meets middle-range needs and curbs the demand for high-end units. But it's important to understand the intention and impact of the trial program, which isn't merely aimed at lowering housing prices and rents.

The launch of the trial program sparked heated discussion about reforms that envision giving renters the same rights as property owners, but renters will not have full parity with homeowners. When it comes to school enrolment, for example, the fact that renters may be qualified because of location to send their children to nearby schools doesn't mean that the children are automatically eligible for admission. Renters still must meet certain conditions to be able to join the queue for school admissions, such as having a local hukou, or household registration, and owning property.

So when it's said that renters are qualified to queue for a place for their children in a school, it only means that they can take advantage of such things as unused quotas in local schools.

Giving tenants the right to enjoy public services that have long been associated with property ownership would only be part of an effort to improve admissions conditions for rental tenants' children in public schools during the years of compulsory education in China. Renting basically rules out the possibility of entering the best schools.

Actually, policies that allow renters to send their children to neighboring schools have been in place for years in many cities across the country.

But particularly in bigger cities experiencing a population influx, where many people are jostling for access to high-quality educational resources, it has become a common problem that these cities simply don't have enough for everyone's needs and homes in school districts continue to be a focus of competition.

If there are no increased commitments to educational resources, the issue of school district homes won't be fundamentally resolved and prices of homes in school districts that are intrinsically powered by admission quotas will hardly be affected. It's easy to imagine that if school district homes can be rented, not only owned, allowing admission to prime schools, either rents for those units will skyrocket or the properties will be rare as the competition for school district homes grows even fiercer.

As for the problem of granting hukou to renters, it needs to be sorted out with which household the hukou should be registered. If renters register their hukou with rental homes, there may be disputes in the future if they don't want to transfer their hukou when the lease runs out, thus weighing on rental supplies by individuals.

A more regulated and workable method would be to create a unified management regime of collective hukou at residential compounds, but that would require more detailed policies.

The household registration system has long hindered the free flow of talent, restricted exchanges between urban and rural areas and among different regions of the country, thwarted efforts to narrow the gap between rich and poor and slowed plans for further urbanization. Qualifying tenants for local household registration is an attempt to facilitate the flow of talent, but it doesn't go far enough to break the shackles. The crux of the problem lies in the household registration system and the government should push for a set of complementary reforms that would genuinely end the rigid stratification of people emanating from the hukou system.

Currently, a hukou remains a "pass" to access scarce public resources such as education, employment, healthcare and social security, and it has naturally turned out to be a lure extended by varied cities to attract talent. It seems that the cities that grant rental tenants local hukou in the near future are more likely to be the ones that already have comparatively loose housing registration policies.

Bigger cities with net population inflows will potentially set high bars even if they also allow rental tenants to apply for a local hukou.

There's another factor to consider: China needs to reduce the cost and increase the efficiency of the professional leasing businesses. Property developers rely on the traditional business model of buying parcels of land for development, which produces rapid returns. Large-scale leasing businesses operate in another way however.

The shift from property developers toward leasing business operators is not just a test of property companies' operational and managerial strengths. It's also a challenge for them to maintain liquidity during the long period it will take to recoup their costs. Policies must be drawn up to offer substantive benefits to property companies that will induce them to shift toward the leasing model. Efforts should focus on cutting costs, which means subsidies, tax breaks, and lower prices for land on which rental units will be built. Of course, under China's construction land quota system, the allocation of land for building rental homes shouldn't come at the cost of sacrificing the area provided for housing units for sale. A failure to achieve this balance will trigger land and home price hikes.

Furthermore, measures should be considered that will increase the yields of investing in leasing for there to be a turnaround in the rent-to-sales ratio, which has for long been excessively low. Only if China makes efforts that go well beyond the pilot program, can housing speculation be fundamentally eased.

The author is a senior analyst with Bank of Communications Co in Shanghai. bizopinion@globaltimes.com.cn



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