Affordable housing is of much importance for Chinese subsidized housing. However, the implementation of the affordable housing policy is facing several problems. One crucial problem is that the current policy cannot effectively identify high-income applicants who are not qualified to apply for affordable housing. Based on the theory of incentive mechanism design, this paper reveals that the current allocation institution has no incentive compatibility. To remedy this shortcoming, a new model for the management of affordable housing is established. Finally, an example is given to show how the proposed model can help improve the overall process of managing the allocation of affordable housing in China.
Market mechanism (Hou, 2009) has been applied to the Chinese housing allocation system since the urban housing reform in 1998. Nowadays, most Chinese urban inhabitants purchase dwellings from the real estate markets instead of waiting for the allocation from the government. Different from other countries, in China, all lands are state-owned. Therefore, real estate developers must pay the government a huge sum of money to rent the land for a predefined number of years, which varies by type of property.1 However, this has not been a deterrent in the rate of development. Due to the recent housing reforms, the Chinese real estate industry has grown dramatically, benefiting from rapidly increasing quantity and price in the residential housing market. While this growth has resulted in improved housing conditions for a large of number of urban inhabitants, many residents still cannot afford a dwelling due to their low-income. However, traditionally, owning a ‘home’ has great meaning for most Chinese. As a result, each family wants to own a dwelling instead of renting, making the housing problem one of the toughest current social problems in China. To respond to this problem, the Chinese government has established an urban housing security system, within which affordable housing is the most well-known policy.
The affordable housing (Duda et al., 2005 and Nie, 2004) is a type of subsidized housing. The government offers certain lands free of charge, and the property developers who have succeeded to bid will construct and sell ‘affordable units,’ with profit caps, to citizens who can get the necessary purchasing permissions from the government (China Business Intelligence, 2008). The relationships among the above three parties are shown in Fig. 1.
Market mechanism (Hou, 2009) has been applied to the Chinese housing allocation system since the urban housing reform in 1998. Nowadays, most Chinese urban inhabitants purchase dwellings from the real estate markets instead of waiting for the allocation from the government. Different from other countries, in China, all lands are state-owned. Therefore, real estate developers must pay the government a huge sum of money to rent the land for a predefined number of years, which varies by type of property.1 However, this has not been a deterrent in the rate of development. Due to the recent housing reforms, the Chinese real estate industry has grown dramatically, benefiting from rapidly increasing quantity and price in the residential housing market. While this growth has resulted in improved housing conditions for a large of number of urban inhabitants, many residents still cannot afford a dwelling due to their low-income. However, traditionally, owning a ‘home’ has great meaning for most Chinese. As a result, each family wants to own a dwelling instead of renting, making the housing problem one of the toughest current social problems in China. To respond to this problem, the Chinese government has established an urban housing security system, within which affordable housing is the most well-known policy.
The affordable housing (Duda et al., 2005 and Nie, 2004) is a type of subsidized housing. The government offers certain lands free of charge, and the property developers who have succeeded to bid will construct and sell ‘affordable units,’ with profit caps, to citizens who can get the necessary purchasing permissions from the government (China Business Intelligence, 2008). The relationships among the above three parties are shown in Fig. 1.
The affordable housing policy aims to support the moderate and lower income households to afford flats with essential area. However, many higher income inhabitants are mixed in the pool of applicants. The current policy cannot effectively make distinction between the eligible and ineligible applicants because of the asymmetric information condition. Based on the theory of incentive mechanism design, the current affordable housing policy is inspected structurally, and some recommendations are formed.
