Financing Affordable Housing Through Compulsory Saving: The Two-Decade Experience of Housing Provident Fund in China

Abstract

Housing Provident Fund (HPF), a compulsory saving scheme providing self-funded housing credit, is a significant provider of housing finance in several emerging economies. The Chinese HPF program constitutes the largest social housing finance program in the world. Yet, very few studies have examined it. This paper documents the history of China's HPF program, in particular, how it has evolved from a local experiment to a prominent national housing program. It then examines the program's management structure and the role of HPF lending in meeting China's housing finance needs. The paper also compares China's HPF experience with the HPF practices in other countries. Finally, the paper examines the challenges China's HPF program faces today and the efforts to address them. The paper concludes by discussing some of the broader lessons that can be learned from China's HPF experience.

Notes

¹ As given in Table 2, the actual contribution rate varies across cities and work units. There is no national database on the contribution rate, so it is hard to know what the national average is. We assume a 10 per cent contribution rate from both employers and employees since it is likely to be the mid-point of the variation in many places.

² Before November 2007, nearly all borrowers can get preferential commercial-bank mortgages as long as their credit risks were assessed low by banks. After November 2007, banks can only issue mortgages at preferential rate to first-time homebuyers. The possibility to get preferential mortgages has become extremely rare since the government tightened lending to cool down housing markets in early 2010.

³ The contribution rate is 8 per cent under the FGTS scheme in Brazil and the deposit is collected from employers only (UN-HABITAT, 2010). Under the INFONAVIT scheme in Mexico, the contribution rate is 5 per cent but the deposit is collected from employees only (UN-HABITAT, 2011). The contribution rate under the CPF scheme (section A – for private sector employees and non-pensionable public sector employees) in Singapore is 16 per cent at the employer side and 20 per cent at the employee side when the employee is less than 50 years old but progressively declines as the employee crosses 50 years old (CPF Broad, 2014).

⁴ We thank one of the reviewers for pointing this out.

⁵ In recent years, the Chinese government put great emphasis on providing public housing to solve the housing problems for urban households (Deng et al., 2011). In the beginning of 2011, the Chinese government promised to build 36 million units of public housing during the “12th Five Year Plan” period (2011–2015).

⁶ We thank one of the reviewers for pointing this out.

Additional information

Funding

The research is supported by the funding from NSFC [grant number 71173045]; Ministry of Education [grant number 13JZD009]; and Shanghai Shu Guang project [grant number 13SG35].