Many academics and housing experts propose a dramatic increase of subsidised public rental housing for low- and middle-income people. Meanwhile, the central government and many cities have launched programmes to build low-cost housing for purchase. At the same time, Beijing is instituting policies aimed at cooling the red-hot housing market and imposing new taxes to thwart speculators.
One thing most experts agree on is that the private sector has done a poor job of providing affordable housing.
"House prices have risen much faster than average incomes in major cities over the past 10 years, with prices in Shanghai reaching 16 times the average household income, by our estimate," Peng Wensheng, a Barclays Capital analyst, said in a report published this month.
Prices in 70 major mainland cities rose 12.8% in April from a year earlier - the fastest pace on record, according to the National Bureau of Statistics.
A report released by the Chinese Academy of Social Sciences indicates that home prices are already out of reach for 85% of families.
"The new demand for homes comes from fresh university graduates and farmers and workers migrating from rural areas or other cities," Li Qingyun, a professor at Peking University, said.
He said the new demand amounted to about 20 million people a year, most of whom could not afford to buy a home in urban areas.
To stem the rise in prices, Beijing tried to curb bank lending. But Li suggested the tax system be changed by requiring local governments to hand over revenue from land sales, their major source of income, to the central authorities.
"The central government will return the revenue to local governments but designate the use of the money," he said. That will discourage the incentive local authorities have to boost land prices.
While Li's proposal has not been accepted, the central government is formulating new taxes. One would be imposed on existing residential property holdings to increase costs for speculators. Under the plan, property owners would be taxed on the basis of the number of units they hold or the total gross floor area.
Early this month, the State Administration of Taxation set the rate of land appreciation tax according to property price appreciation. It said the rate should not be less than 2% in eastern provinces, 1.5% in central and northern provinces and 1% in western provinces.
Beijing also announced a stricter second-home mortgage policy, such as allowing banks the discretion to suspend mortgage approvals for properties whose prices are excessively high. But experts say cooling the rise in prices is only part of the equation. Yan Hao, a researcher at the National Development and Reform Commission, suggested in a recent report that Beijing should create a legal guideline, much like Singapore's Housing and Development Board Act, to serve as a national road map in developing public housing.
"China has neither passed a special bill nor set up a unified body to support its welfare housing programme," Yan said. "Due to a lack of co-ordination and consistency, the effectiveness of policy implementation may suffer from time to time, and from place to place."
Yan said that in Singapore, the Housing and Development Board was a single entity that operated largely on its own, borrowing from the capital markets. In comparison, China has yet to work out a sustainable financial arrangement to support the public housing plan.
Li of Peking University suggested the central government should look to Hong Kong and Singapore, whose governments played a major role in housing and where nearly 50% or more of residents lived in public rental or government-subsidised housing.
In addition to heavily subsidised public rental housing for the poor, Li and other academics, including Chen Jie, deputy director of Fudan University's centre for housing policy studies, also back subsidised rental housing for middle-income earners.
Meanwhile, city governments - including those in Beijing, Chongqing, Guangzhou, Hainan, Shenzhen, Tianjin, Xian and Xiamen - have announced their own plans.
The Chongqing municipal government has launched a pilot subsidised rental housing scheme open to the "sandwich class".
The scheme benefits low-income wage earners who have held down a full-time job with a stable income in the city for at least one year. Migrant workers can also qualify to apply for the low-rental housing.
The completed flats will be offered to eligible tenants at a monthly rent set at 60% below the private market rate. They will qualify to buy their own flats after five years of occupation.
Chongqing party secretary Bo Xilai said: "It is the government's responsibility to build homes for the poor and satisfy basic housing needs for ordinary people."
The Chongqing government plans to build 40 million square metres of low-rent housing units over the next 10 years. The target for this year is set at 70,000 units with a total of 5 million square metres.
The city's goal is to house 30% of low-income families in low-rent flats, while 70% of medium- to high-income families would opt for the private market.
However, Chongqing did not mention how it would restrict lending for speculators and how it would limit purchases to one flat in its 10-point measure, unveiled last month.
State media outlet Xinhua quickly criticised Chongqing, as well as other cities such as Xian and Guangzhou, for not implementing tough measures to back up the central government's efforts to tighten lending.
Chen of Fudan University said local governments were unwilling to cool off home prices and build less profitable homes for the poor because land sales accounted for much of their revenue.
Meanwhile, many developers such as the Shanghai-based Powerlong Real Estate Holdings say they do not believe the central government will impose tough restrictions because it could slow economic growth.
"Property is an engine of the mainland economy," said the company's chairman, Xu Jiankang, also known as Hoi Kin-hong.
Housing construction and investment have accounted for about a quarter of fixed-asset investment in recent years. Fixed-asset investment had accounted for about 44% of gross domestic product in recent years, and property construction and investment made up about 11% of GDP, Barclays said.
But Peng of Barclays said he did not believe restricting property development would lead to a hard landing for the economy.
"We maintain our growth forecasts at 10.1% in 2010 and 9% in 2011. Any slowdown in private housing construction is likely to be offset, to a significant extent, by public housing construction," the company said.
Peng said investment in one-third of the three million public housing flats targeted in 2010 would be realised mainly in 2011, with a further two to 2.5 million new flats to start construction in the year.
This translates into a moderation in public housing investment growth from the high base this year. It also assumes a slowdown in private property investment to zero growth for the year as a whole.
"Putting these together, we estimate a downside risk of 0.7 percentage point to our forecast of 9% GDP growth in 2011," Peng said.
The first effort at housing reform was introduced by then premier Zhu Rongji in 1998 in an attempt to boost the economy after the 1997 Asian financial crisis. The reform replaced a welfare-based allocation of housing with a commercialised market.
"In the first reform, the central government had not set a clear direction for the development of the nation's housing system," Li said. "They did not consider thoughtfully how many public and government-subsidised homes they needed to build for the poor.
"This time around, it won't be easy for the central government to make a shift in the current housing policy. We do not expect the problems will be solved in the short term." But, he added: "They must set a clear direction so that we can see a healthy development of the property market in China in the next 10 to 20 years." -- South China Morning Post