Beijing is stepping up the pressure on local authorities to find money to build more affordable housing for low-income households as they struggle to keep up with a target set last year of 36 million subsidised homes over five years. The Ministry of Finance says local governments must 'guarantee' their share of the funding for projects under their control and ensure there is no shortfall between the plans and the financing. That is a tall order, given that local officials cannot rely on tax revenues, which go mostly to the central and provincial governments. They have depended on land sales to finance social programmes and infrastructure investment. As a result, they have had little incentive to curb rising property prices and build affordable homes.
Last year Beijing asked local governments to put 10 per cent of their net proceeds from land sales into the affordable housing programme. Now the finance ministry says the programme should have first called on the proceeds of local government bonds and a new property tax getting a trial run in Shanghai and Chongqing. It said provincial governments should support cities struggling to raise enough money. To mark the start of a campaign to support the programme, Vice-Premier Li Keqiang has called for more efforts to root out corruption in the allocation of subsidised apartments, saying that fair distribution is a major test of the government's credibility.
The demand for affordable housing was created by the great urban migration. But local government alone is not responsible for the way the development of the property market has contributed to a growing wealth gap, since market reforms in 1998 did not include a target for subsidised housing. This is now a social issue which, if not handled with resolve and vision, carries the seeds of social instability. If local government is to be responsible for bridging a finance gap, it has to be encouraged to raise money for special purposes, for example through issuing housing bonds.