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