Can the citizenization of rural migrant workers dissolve the real estate inventory?

One

Since 2009, the booming real estate market has driven a sharp rise in housing starts and floor space under construction, causing phased and structural oversupply in some places. The long-term accumulation of inventory will inevitably threaten the health, security and development of the economy, finance and society. Therefore, destocking is currently an important housing policy goal. However, attempting to use macroeconomic stimulus policies to expand the existing rigid demand and upgrading demand in cities and towns will find it difficult to effectively dissolve such a huge excess inventory in the short term. Opening up new demand, that is, accelerating the citizenization of rural migrant workers and supporting rural migrant workers in buying homes, is an effective measure to quickly absorb excess inventory and promote the steady adjustment and development of the housing market. Moreover, rural migrant workers buying homes and their citizenization are also of great significance for building a moderately prosperous society in all respects and realizing the Chinese Dream of the great rejuvenation of the Chinese nation.

At a certain level, the “Chinese Dream” can be understood as China's successful transformation from a traditional rural society to a modern society, and as the “family-country dream” that every Chinese person simultaneously weaves of personal transformation, family prosperity, national strength and national rejuvenation. The main issue in China's transformational development is the issue of farmers. An inherent requirement for achieving this transformation is to let rural migrant workers become urban citizens, let the country become an advanced modern country, and realize national strength and national rejuvenation. Farmers are one of the main forces in China's transformation; their unremitting efforts will change their own and their families' destinies and drive national strength and national rejuvenation.

⟦NL> Rural migrant workers are the main force in China's transformation. However, rural migrant workers and their families also face the predicament of lacking housing. Many prominent problems currently facing the economy are related to the issue of rural migrant workers: insufficient demand for economic growth comes from the demand gap caused by semi-urbanization; the reform of the household registration system, fiscal and tax system, land system and financial system is closely related to rural migrant workers buying homes and their citizenization. Therefore, the citizenization of rural migrant workers has a one-stone-many-birds effect. First, rural migrant workers are an important force in destocking the housing market, and their citizenization helps dissolve real estate inventory; second, their citizenization drives investment and consumption, thereby stabilizing growth and promoting transformation; third, encouraging rural migrant workers to buy homes can force reforms; finally, farmers buying homes fulfills rural migrant workers' housing dreams and is also an inherent part of moderate prosperity in all respects. It can even be said that lifting 70 million people out of poverty and the citizenization of rural migrant workers are the final project in the building of China's dream of moderate prosperity. Encouraging rural migrant workers to buy homes, in addition to leveraging the multiple effects of their home purchases, is also based on the existing housing stock, excess inventory and potential new supply, while the potentially effective demand of urban residents is difficult to absorb and match the scale of existing housing stock, excess inventory and potential new supply.

Two

Urban housing demand ultimately depends on the total urban population and its changing trend, and China's future housing demand still has considerable room for growth. According to statistics, in 2014, China's urban permanent resident population reached 770 million, of which the existing registered population was close to 500 million and the non-registered permanent resident population was 270 million.

First, given the uneven distribution of housing ownership and the incomplete supporting facilities of some housing, during the “13th Five-Year Plan” period there were still about 100 million low-income families among the urban registered population with housing difficulties, requiring about 38 million units (estimated at 3 billion sq m) of affordable housing guarantees, including shantytown redevelopment, public and low-rent housing, etc. Even if part of the physical guarantee is changed to monetary guarantee, calculated at a 50% purchase volume, 1.5 billion sq m will be purchased from the market, reaching 300 million sq m per year.

Second, although on the whole the urban registered population may have passed the saturation standard of 1:1 unit per household, given the uneven distribution of housing ownership and the incomplete supporting facilities of some housing, a considerable number of the registered population still have upgrading demand and rigid demand. If the average annual sales of 1 billion sq m in recent years are all regarded as the rigid and upgrading demand of urban residents, and it is assumed that the annual scale remains unchanged in the next 5 years, the total demand during the “13th Five-Year Plan” period will be 5 billion sq m.

From this it can be estimated that in the next 5 years the total demand for commodity housing from the existing urban registered population will reach about 6.5 billion sq m, but this is still lower than the sum of current excess inventory and future potential supply. To complete destocking and maintain sustainable growth of the housing market, it is necessary to open up new demand, among which the most realistic demand is the housing demand created by the citizenization of rural migrant workers.

It is estimated that in the next 5 years new home purchases by rural migrant workers can total 2.31 billion sq m. According to the National Bureau of Statistics survey data on rural migrant workers: in 2014 the total number of rural migrant workers was 270 million, among whom only 1% lived in homes they had bought in cities and towns, 13.3% returned to rural areas to live, 36.8% rented housing, 17.2% lived in work sheds, and 28.3% lived in dormitories provided by their work units. Calculated on the basis of 100 million people becoming urbanized in the next 5 years, if 70% of household members buy homes in cities and towns (33.3 sq m per person), the annual housing purchase demand mainly from rural migrant workers can reach 460 million sq m.

Three

Whether rural migrant workers can afford housing, or where they can afford it, mainly depends on their income, the cities and towns where they are employed, and housing prices in those cities and towns. According to the National Bureau of Statistics survey data on rural migrant workers: among the 170 million rural migrant workers working away from home in 2014, in terms of family migration, 20% migrated with their whole family and 80% migrated alone; in terms of the cities and towns of employment, 30.5% of rural migrant workers working away from home were in municipalities directly under the central government or provincial capitals, 34.2% were in prefecture-level cities, and 34.9% were in small towns; in terms of income and growth, the average income was 2864 yuan, with a growth rate of 9.8%, among which construction had the highest at 3292 yuan, and resident services, repair and other services had the lowest at 2532 yuan. Based on the above data, the data in the China Statistical Yearbook and housing price data from various places, a rough estimate can be made of rural migrant workers' housing affordability.

First, estimation of rural migrant worker household income: generally speaking, the income of a rural migrant worker couple both employed in cities and towns differs from that of only one employed in cities and towns. Based on the National Bureau of Statistics survey data and statistical data, it is estimated that a fully migrated household has an annual income of 80,000 yuan, of which wage income is 72,000 yuan (estimated at an average of 3000 yuan per month), and agricultural income is estimated at 8000 yuan (estimated according to farmers' net income). A single-migrant household has an annual income of more than 40,000 yuan, of which wage income is 36,000 yuan.

Second, estimation of housing prices in cities of different regions and levels: calculating on the basis that housing prices in prefecture-level cities at or above the provincial capital level all exceed an average price of 7000 yuan per sq m, a 100 sq m home costs more than 700,000 yuan, with a down payment of more than 140,000 yuan; for prefecture-level cities, calculated at an average price of 5000 yuan per sq m, a 100 sq m home costs 500,000 yuan, with a down payment of at least 100,000 yuan; for county-level cities, calculated at an average price of 3000 yuan per sq m, a 100 sq m home costs 300,000 yuan, with a down payment of at least 60,000 yuan; for central towns, calculated at a price of 1500 yuan per sq m, a 100 sq m home requires 150,000 yuan, with a down payment of at least 30,000 yuan.

Third, rough calculation of rural migrant workers' housing affordability: the housing price-to-income ratio is measured through housing prices in different cities and the income conditions of different households. For fully migrated households in prefecture-level cities, county-level cities and central towns, the housing price-to-income ratios are 1:6.75, 1:3.75 and 1:1.5 respectively; for single-migrant households in prefecture-level cities, county-level cities and central towns, the housing price-to-income ratios are 1:12.5, 1:6.75 and 1:3.75 respectively. According to the internationally recognized reasonable range of a housing price-to-income ratio of 1:2-6, it can be seen that for both fully migrated and single-migrant households buying homes in cities at or above the provincial capital level, affordability exceeds the reasonable range, and single-migrant households buying homes in prefecture-level cities also exceed the reasonable range.

Overall, rural migrant workers basically have housing affordability in cities and towns below the prefecture level, but do not have housing affordability in cities at or above the provincial capital level. Rural migrant worker households in the eastern region have relatively poor housing affordability, while those in the central and western regions have relatively good housing affordability. At the same time, because nearly 70% of rural migrant workers are employed in cities and towns at or below the prefecture level, and because identity recognition and improvement in the welfare of left-behind families determine that rural migrant workers tend to buy homes back in their hometowns, rural migrant workers are most suited and most likely to buy homes in cities and towns at or below the prefecture level.

Four

Under the assumption of a complete institutional system such as housing finance, rural migrant workers basically have housing affordability in cities and towns at or below the prefecture level, but households that migrate with their whole family for employment may still face a 50% funding gap, and households with one person migrating for employment may face a 75% funding gap. The absence and constraints of housing finance and other related systems, and the infrastructure and public service problems of cities at or below the prefecture level, lead to a relatively low actual home purchase rate among rural migrant workers.

First, rural migrant workers' housing purchase capacity is reduced because of financial exclusion and institutional constraints. First, in terms of policy-based housing finance, rural migrant workers working away from home account for only 5.6%, and the provident fund ratio for local rural migrant workers is 5.3%, and most of it cannot be carried over and cannot be used for renting; second, in terms of commercial finance, when rural migrant workers buy homes in their destination areas, obtaining housing mortgage loans involves household registration discrimination, while when rural migrant workers are in their source areas, using fixed assets such as land and housing as collateral to obtain loans still faces many obstacles. In addition, the land contracting rights, homestead use rights and collective income rights that can form rural migrant workers' income are also difficult to trade and cash out, and income and assets are difficult to realize.

Second, rural migrant workers' willingness declines because of the urban environment and household registration. First, the provision of public services is based on household registration, and rural migrant workers who buy homes cannot obtain the same education, medical care, employment, social security and other services as the urban population, thereby reducing their willingness to buy homes; second, cities and towns at or below the prefecture level across the country lack infrastructure and have low levels of public services, especially small towns in the central and western regions, where infrastructure and public services are lacking, so even though rural migrant workers have purchasing power, they lack the motivation to buy homes and move in.

To dissolve real estate inventory, there is an urgent need to accelerate the citizenization of rural migrant workers and advance housing system reform that takes satisfying new citizens as its starting point.

First, the former blue-stamp household registration system can be used for reference, and home-buying residents can be included in the population covered by residence permits. Comprehensively advance and improve the residence permit system; for anyone buying a home, no longer consider or reduce the number of years of employment and social security contributions, and let them enjoy public services and infrastructure equal to those of registered residents. In particular, their children should enjoy the right to equal and high-quality education. The government should give home buyers equal employment and entrepreneurial opportunities as registered residents, include them in the employment and entrepreneurship service system, and provide services and support.

Second, a shared property rights system for commodity housing can be explored, implementing the divided sale of housing property rights. On the one hand, developers are short of funds and urgently need to destock; on the other hand, rural migrant workers have limited purchasing power, so the method of developers holding part of the property rights and selling part to home buyers can be considered, with both jointly applying to the bank and obtaining mortgage loans, and developers and home buyers holding rights in proportions of 3:7, 5:5 or 7:3. Developers lease the portion of property rights they hold to the owners and agree on the price at which it will be fully sold to the home-buying household in a certain number of years.

Third, an inclusive housing finance system can be established to achieve policy-based and commercial coverage of rural migrant workers. In response to the current exclusion of rural migrant workers by policy-based finance and commercial finance, an inclusive policy-based housing finance system can be established, expanding provident fund coverage for middle- and low-income residents, extending provident fund coverage to rural migrant workers, and implementing a system for withdrawing funds in another place to buy homes; a commercial inclusive finance system can be established so that rural migrant workers obtain equal commercial housing mortgage opportunities as registered residents, while accelerating the improvement of mortgage and guarantee systems for farmers' housing property rights.

Fourth, rural migrant workers can be allowed and encouraged to transfer land contracting rights and sell and rent out housing. The protection and market-based trading of rural migrant workers' property rights in rural areas not only helps the rational use of resources and enables farmers to work happily in cities and towns, but also helps them settle down in cities and towns; however, many legal and institutional obstacles still exist. To this end, pilot experience can be summarized and, in accordance with the law, the transfer of land contracting rights, the transfer of homestead use rights and the implementation of collective income distribution rights can be promoted.

Fifth, infrastructure and public services in cities below the prefecture level can be improved. Establish a fiscal system linked to the permanent resident population and responsible at different levels, increase transfer payments to cities and towns with low administrative levels, and establish a housing subsidy system for rural migrant workers. Accelerate the formulation of investment policies tilted toward small cities, improve their employment absorption capacity, change the current mismatch between China's urban employment absorption capacity and housing affordability, and encourage more rural migrant workers to buy homes and permanently migrate in small towns.