Town Planning Review 91.1 Featured Article

The editors of Town Planning Review have selected ‘Institutions for housing subsidisation: the case of low-income housing in China’ by Feng Deng as the Featured Article for Town Planning Review 91.1.

The paper will be free to access for a limited time here.

When asked to describe the paper and highlight its importance, the author stated the following:

Housing is probably one of the most important social issues in China and housing reform has been going on for more than twenty years. There are many debates on housing, one of which is what kind of low-income housing the government should provide to the poor. However, since housing as a commodity was outlawed in the era of planned economy, people know little about what is the best approach to low-income housing, let alone its institutional form and governance structure.

On the other hand, there is also limited knowledge about the institutions for income redistribution, of which institutions for housing subsidisation is one type, despite the widespread interests on institutions and institutional change. Common institutional forms for housing subsidisation include public housing and social housing, but little is known about the reasons behind their particular institutional structures. For example, public housing and social housing have three important features: (1) public ownership or social ownership; (2) management board not held accountable to the recipients; (3) non-profit organization enjoying a special status. No previous studies explain why those three features prevail.

Besides, there are at least three analytical angles with regard to housing subsidisation.  The first angle is about the relationship between the poor and their representatives (or policymakers) in the legislature (or government at large). The second angle focuses on the relationship between the legislature or the government and the provider of low-income housing. The third angle looks at the relationship between housing provider and the poor (or welfare recipients). This is where special institutions are often needed. Thus, it is the focus of this research.

Motivated by the above issues and knowledge gaps, we did field study in two low-income housing communities in Chongqing, China. They belong to Cheap Rental Housing (CRH). Our research mainly includes semi-structured interviews of local residents, managers of the property management companies (PMCs) and directors or party secretaries of the residents’ committees.

My main finding is that recipients of housing subsidies have the incentive to be over-subsidized in a way that is similar to the tragedy of commons. Once the legislature or the government decides on the overall size of the subsidy, every party involved including the welfare recipients has the incentive to privatize part of the subsidy as much as possible. This is called the over-subsidisation problem.  Institutions with the above-mentioned three features are better at preventing or mitigating the recipients’ opportunistic behavior.

We also found that public housing has high management cost and low efficiency.  Market institutions such as PMC can help to enhance efficiency in housing management, but their strong motivation for profit is also a source of problems.  Furthermore, PMC is not good at dealing with residents’ anti-social behavior while public institutions can play an important role on that matter.