How China can make an omelette out of housing eggs it has broken

It’s becoming clear that the Chinese government may have to take over many of the flats that private developers cannot complete
Turning private homes into affordable public housing could be a way to defuse the real estate crisis and encourage families to have children

Jacob Dreyer

Published: 7:30pm, 26 Dec 2023

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Public housing is the wave of the future for China’s cities. The government recently issued “Document 14”, reportedly calling on cities with a large inventory of private housing to buy and convert the unsold homes into public housing.

It’s becoming clear that the Chinese government may have to take over many of the flats and houses, partially built or not built at all, that private sector actors like Evergrande and Country Garden cannot complete.

When President Xi Jinping visited Shanghai last month to talk up China’s economic future, he stopped at an affordable housing compound, implicitly giving support to the notion that the Chinese state will play a new role in housing – different from how it provided cheap credit during the real estate boom years.

While, from a short-term perspective, China’s real estate problems look like the result of a major misstep, the reality is that China built an immense quantity of needed housing as part of an urbanisation project that has upgraded its economic prospects.

Scholars recently estimated that 88 per cent of all housing in China had been built since 1990, and 68 per cent since 2000. Even with those houses built, China is only 60 per cent urbanised.

When consultants say the next China is China, they could also be referring to the ongoing process of urbanisation: most developed countries are 80 per cent urbanised or more, and China’s growth can be further fuelled by adding another 100 or 200 million citizens to the urban workforce over the next decade. But how?

Too many empty houses, too many families putting off having children due to housing costs. To kill both birds with one stone, China should use housing as a backstop to support families who want to have children.

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After all, housing is the biggest expense for many families, followed in close order by education and healthcare: call it soft infrastructure. While China’s government is wary of creating a welfare state, the housing that it may be taking over from bankrupt real estate developers is a fixed cost.

As China grapples with demographic problems, housing can be a powerful lever to stimulate the formation of families. More people are saying no to dating, marriage and kids. But what if China’s government simply said: anybody who is willing to live in the housing that we’re taking over can have it for nominal maintenance fees, but only if they have two or more children? First come, first served.

It is no secret that most families in cities like Shanghai, Hong Kong and Beijing weigh living costs when considering whether to have a second child – or a child at all.

Our son was born last year; with a second on the way, we’ll definitely be moving to a larger flat, since the grandparents are helping out, too. And that’s before you even factor in the cost of education. I joke with my wife that in China, having children is the ultimate luxury item: everybody knows that it’s way more expensive than a Louis Vuitton bag, or probably even a luxury sports car.

As demographic growth in China slows, following other Asian societies, there has been endless pained debate about what cultural reasons might be to blame. But what if it’s as simple as the high cost of raising children? If China wants to avoid demographic decline, it has the most powerful tool imaginable in its arsenal.

Of course, most of the housing that can’t be sold or completed isn’t prime, top-tier real estate in Shanghai or Beijing. Generally speaking, these homes would be in second- or third-tier cities in urbanised regions like the Greater Bay Area or Yangtze River Delta.

In a way, though, that is a good thing, since those places are more likely to have relaxed hukou policies than first-tier cities. Hukou household registration is the key to schooling and healthcare, both of which are crucial to every parent.

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All over China, there are empty housing compounds, whose owners are going out of business. All over the country are idealistic, well-educated college graduates who cannot find jobs. And all over the country are innovative new uses of technology in hospitals and schools which integrate AI into work in ways that enhance efficiency- without reducing the need for human workers. Put it all together, and you have the ingredients for sustainable, pleasant communities.

It won’t work for everybody, of course. Even if free housing was on offer in suburban Zhengzhou, my wife and I would most likely choose to raise our kids in Shanghai. As in Singapore, whose model has inspired Chinese urbanism before, there will be plenty of room for fancy urban cores with high-end real estate.

But many people – in particular, migrant workers who are separated from their children by high housing costs in the cities that they work in – would jump at the chance to have affordable housing, with positive knock-on effects on their children’s education and health. As it is, some say the left behind children of migrant workers pose a structural risk to China’s future.

Access to a secure place to live in the city would be a good start; education and healthcare – not the best, but good enough – would bring hundreds of millions of Chinese new opportunities, and in turn, breathe new energy into the Chinese economy.

In structurally adjusting the Chinese real estate market, the government has broken some eggs. It’s time to make an omelette, and solve China’s demographic problems in the process.

Jacob Dreyer is a writer and editor based in Shanghai