The Welfare Allocation Housing System: Spanning 1949 to 1978

China’s housing market has operated according two different systems since 1949: (1) from 1949 to 1998, it took the form of an allocation-based welfare system, functioning as a component of government provision; and (2) after 1998, it became a market-oriented housing system, following implementation of the housing reform. The economic system, which was marked by transition to a market-based system, has had a significant influence on the housing system; thus, the development of the housing system is now intertwined with the Chinese economy overall.

During the period of the planned economy, houses in urban3 _{areas were covered by the} welfare allocation housing system. This system required the government to plan its operations, allowing work units to dominate housing construction and housing allocations.

2_{This is termed ‘Gai Ge Kai Fang’ (改革开放) in Chinese.}

3 _{The house in rural area is regarded as homestead, and cannot be transacted because it is owned by the rural}

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Employees with a formal employment contract of in excess of one-year length were eligible for the opportunity to be allocated to a house (Wang and Murie, 1996, 1999; Zhao and Bourassa, 2003). Houses were allocated to employees free of charge, according to employees’ professional titles, their length of service and the size of their households. The housing allocation in China assigned two persons to a one-bedroom house, three to five persons to a two-bedroom house, and six to eight persons to a three-bedroom house (Friedman, 1983; Zhou and Logan, 1996, p.400). There were no market transactions, and no market prices were set to obtain the allocated house; however, employees that had been allocated a house were required to pay maintenance fees administered by the government the planning system (Wang and Murie, 1999; Chiu, 1996). The maintenance fee for the allocated houses was 1 per cent overall of the average employee’s annual income (Yang and Chen, 2014). As a key feature of the country’s socialist organisation, the welfare housing system to some extent met employees’ housing needs4 _{during the 1950s.}

It should be noted here that the allocated houses were thought of as public housing, and control and ownership of all houses belonged in the hands of the state (Zhao and Bourassa, 2003), which took on the role of landlord. Thus, people living in the allocated houses were not homeowners, and were not allowed to purchase, resell, inherit, or swap the allocated houses. This is important, as homeownership affords economic benefits to families, enabling them to accumulate family wealth. An owner-occupied home is a financial investment, enabling families to build financial security as equity over the long term (Pollakowski et al., 1991). Therefore, public ownership weakened families’ wealth position, obstructing family investment in housing (Zhao and Bourassa, 2003), something that can be identified as one of the main disadvantages of the system. According to figures cited in the available literature, private homeownership in urban areas was lower than 20 per cent at the beginning of the 1980s (Wang and Murie, 2011), and the majority of private houses were either self-build houses or older properties. The share of public houses was around 75 per cent (Chen et al., 2013, p.16). Figure 2-1 presented below shows the proportion of homeownership in the early

4 _{In the context of socialist ideology, housing is regarded as a basic need and is right for allocation by the}

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1980s in China, illustrating that a dominant share of the housing stock was devoted to public housing.

Figure 2-1: Proportions of Homeownership in the early 1980s

(Sources: Wang and Murie, 2011, p.240; and Chen et al., 2013, p.16)

Despite the principles of equity underpinning it, the allocation system generated serious housing inequalities, due to housing supply shortages and inequitable allocation. In the context of a welfare-dominated housing system, housing supply responds to the allocation of public houses and relies on centralised planning mechanisms. This differs from a context of the market-dominated housing system, where housing supply responds directly to housing demand. Within the housing allocation system, a housing supply shortage arose because housing allocation was planned and limited by the government, as houses are scarce resources (Zhou and Logan, 1996), and not everyone was eligible to receive one. Moreover, the process of allocation within the housing system only applied in urban areas, with accessibility to allocated houses being restricted in rural areas by the introduction of the ‘hukou’5 _{system in 1958 (Chen et al., 2013). Additionally, the system proved unequal, even}

5_{‘Hukou’ System is a specific household registration system in China, controlling the free movement of residents}

from rural to urban (Chan and Buckingham, 2008). ‘Hukou’ registration identifies if a person has a local residence permit. In addition, ‘hukou’ system is linked to housing allocation under the planned economy. Now it is linked to social welfare benefits (Barth et al., 2012)

20%

75% 5%

Proportions of Homeownership in the Early

1980s

Private Homeownership Public Housing

Other Types of Homeownership

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amongst urban registered employees, as corruption affected allocation and inefficiency became rooted in the welfare housing system because of the regulatory failure of work units and the government (Zhou and Logan, 1996; Chen et al., 2013). A person entrusted with a position of authority, as a member of the privileged class, would typically be allocated a larger sized house in a better condition, while members of the underclass were not given access to such privilege (Zhou and Logan, 1996). The consequence of this corruption was huge housing inequality among employees, with access to housing remaining a challenge for those of members of the underclass, who had to queue for a long time to be allocated a dwelling.

In addition to what was discussed, housing conditions generally across the nation were very poor under the welfare housing system. According to a survey conducted by the China State Statistical Bureau in 1985, about 27.6 per cent of households (including at both city and town levels), lived in crowded conditions (a per capita dwelling space of less than 4 m2_{). A total of} 7.41 per cent of households (including at both city and town levels) lived in inconvenient housing (married couples sharing a room with their parents and teenage children), and 2.06 per cent of households (including city and town levels) were located in non-residential structures (World Bank, 1992). Correspondingly, the average living space had fallen sharply over time; i.e. “from 4.5 per square metre capita in the early 1950s to 3.6 square metres in 1970s” (Chiu, 1999, pp.562). To some extent, issues with housing inequality and unequal allocation under the housing allocation system reveal the drawbacks of a planned economy. Furthermore, the nation’s housing stock developed into a financial burden for the government and work units, eventually becoming an obstacle to the development of the Chinese economy.