Second Home Ownership in Transitional Urban China

Abstract

China has recently experienced a massive growth in second home ownership. This paper argues that second home ownership in Chinese cities is not only a result of an increasingly mature housing market but, more importantly, an unintended consequence of socialist housing policies and institutions, such as the subsidized sale of public rental housing and associated partial property rights, the continued provision of subsidized housing by work units, the continuing household registration system and the lack of property tax. Using the 2005 China General Social Survey, this paper empirically studies the patterns and dynamics of second home ownership in urban China. While households' socio-economic status contributes to conventional second home ownership, the persisting socialist housing policies and institutions have led to the unique phenomena of owing one home with partial property rights and owning a second home, and renting the primary home even in the public sector and owning a second home.

Keywords:

• Homeownership
• China
• second home
• housing

Acknowledgements

This research is funded by a Visiting Research Fellowship by Peking University-Lincoln Institute Center for Urban Development and Land Policy (PKU-Lincoln Center) in 2009, a research grant in Humanities and Social Sciences by the Ministry of Education in China (09YJC790276), and “211” Key Project Funding by Central University of Finance and Economics in China. An earlier version of the paper was presented at the “International Symposium on Housing Affordability and Market Stability” in Beijing, China, 24–27 March, 2009.

Notes

¹ The rate of homeownership in the countryside is almost universal in China.

² While the definition for a second home may vary between countries, approximately 3 to 4 per cent of households in Britain, Northern Ireland and Australia, 11 per cent in France and 25 per cent in Sweden own a second home (Allen et al., 1999; Coppock, 1970; Paris et al., 2009).

³ While the government constantly changes its policy on mortgages for second homes, in general households need to pay at least 40 per cent of their mortgage for a down payment, and the interest rate for second home mortgage is often 10 per cent higher than that for a primary residence (CBC, 2007).

⁴ According to Community and Local Government (see http://www.communities.gov.uk), most second home owners identify more than one reason for having a second home. For example, during 2007–2008, 49 per cent of households in England chose ‘long-term investment’, 26 per cent chose holiday home, 10 per cent a retirement home, 8 per cent worked away from home, 4 per cent lived away from home, 2 per cent marital breakdown, and 30 per cent chose ‘other’ as the reason for owning a second home, with a sum of more than 100 per cent.

⁵ Houses/apartments in China are sold with a variety of bundles of property rights based on how households accessed and purchased their homes. If households purchase their houses from the market and pay market prices, they enjoy ‘full property rights’ or ‘complete property rights’, which include right of occupancy, the right to extract financial benefits, the right to dispose of their property through resale and the right to bequeath it to others (Davis, 2003). If households purchase property that was previously public housing or private housing at subsidized prices, such as economic housing (jingji shiyong fang), they have only ‘partial property rights’, which means they only have the right of occupancy and right of use, and they are not allowed to sell their homes on the market for profit within the first five years unless they pay the difference between discounted and market prices.

⁶ Usually this type of fee waiver is available only to homeowners in the school district. In some cities such as Beijing, a particular length of duration of residence or Hukou registration in the school district (e.g. more than three years) is required to qualify for these fee waivers.

⁷ There are different types of rental and owned housing in Chinese cities. ‘Public rental housing’ is subsidized housing provided by the government and work units, whose allocation is often based on a set of non-monetary factors such as job rank, seniority, marital status and family needs (Huang & Clark, 2002; Wang & Murie, 1999). The provision of ‘public rental housing’ officially ended in 1998; yet, since then there has been a new type of public rental housing called ‘cheap rental housing’ (lian zu fang), targeted mainly at the lowest income urban households (State Council, 1998, No. 23). ‘Privatized public housing’ is previous public rental housing which has been sold to sitting tenants at lower than market prices. Because of subsidies during the sale, households often have so-called ‘partial property rights’, which constrain them from freely disposing of and profiting from the housing. ‘Private rental housing’ is provided by individual households and developers which has market level rents. Private housing by developers sold at market prices is called ‘commodity housing’, which offers household full property rights. ‘Economic housing’ (jingji shiyong fang) is private housing with partial property rights, which is developed with government subsidies (e.g. cheaper land) and sold at government-controlled prices (developers are allowed to have only 3 per cent of the profit rate) to urban low-medium income households (State Council, 1998, No. 23). More recently, ‘housing with controlled prices and sizes’ is private housing with full property rights, but with government-controlled price and unit size (usually less than 90 m² floor space per unit), targeting the so-called ‘sandwiched households’ who do not qualify for economic housing but cannot afford commodity housing (State Council, 2007). Household income, and more recently wealth and existing housing condition, are used as qualifications for accessing ‘economic housing’ and ‘housing with controlled prices and sizes’ (BHURDC, 2007; BMG, 2008).

⁸ China has a dual land and housing system. In cities, urban land is owned by the state, which was allocated to state units free of charge in the socialist era and is now leased to developers for a fee (Ho & Lin, 2003). Homeowners in cities thus only have the use right of the land beneath their owned houses. In the countryside, rural land is mostly owned by the collectives, and rural households can access part of collectively owned land for housing construction (zai ji di).

⁹ According to Connelly et al. (2007), migrants' mean duration of stay in cities is 5.26 years.

¹⁰ Monopoly industries include industries producing and providing electricity, gas and water, geological survey and hydrology management, finance/insurance, real estate, medical and physical education, social welfare, education, arts and media, movie/TV, research, and government/party institution, railways and airlines, postal service/telecommunications, oil/gas drilling and refining and the tobacco industry. The rest are non-monopoly industries. The paper follows the categorization by Bian & Liu (2005).

¹¹ Households with young children who attend kindergartens and elementary schools particularly need to live close to schools, while those who attend middle schools or high schools can often take buses or ride bikes to school on their own. Therefore, 13 years of age is used as a cut-off point to include households with children in kindergartens and elementary schools.

¹² The boundaries for the Eastern, Central and Western regions are the same as those defined by the Chinese Government, in which the Eastern region includes three municipalities (Beijing, Tianjin and Shanghai) and nine provinces (Liaoning, Hebei, Shandong, Jiangsu, Zhejiang, Fujian, Guangdong, Guangxi and Hainan); the Central region includes nine provinces and autonomous regions (Jilin, Heilongjiang, Inner Mongolia, Shanxi, Henan, Hubei, Hunan, Jiangxi and Anhui), and the remainder is the Western region (see map 7.4 in Veeck et al., 2007).