Shenzhen faced with affordable public housing dilemma after tech capital ditched Hong Kong property model

Sidney Leng

When Shenzhen first decided to copy Hong Kong’s land sales model to boost its revenue in the 1980s, they cited 19th-century German philosopher Friedrich Engels to justify the move which at the time challenged China’s constitution that banned land transfer.

“Abolishing private ownership of land does not require abolishing land rents; rather it requires submitting land rents to the society,” wrote Engels, who died in 1895, suggesting that selling land use rights would not challenge state land ownership, but would allow the state to utilise land rents.

Shenzhen’s government conducted its first public auction of land in December 1987 – five months before it was made legal nationally – and they invited dozens of top officials, mayors, journalists, as well as nearly 30 Hong Kong entrepreneurs and economists, to witness the landmark event showcasing the reform initiatives in the former fishing village.

Over the subsequent few decades, a prosperous land market generated sufficient capital to allow the Shenzhen government to build infrastructure and develop industries including technology and logistics to boost growth, which took slightly over 30 years to match the gross domestic product of Hong Kong.

But it also led to the creation of the most unaffordable housing market in China, with the average house price reaching as high as 50,000 yuan per square metre (US$4,600 per sq ft).

Compared to other major Chinese cities, including Beijing and Shanghai, Shenzhen’s land reserve is much smaller at less than 2,000 sq km. Shanghai, in comparison, has a land reserve of 6,000 sq km.

The shortage of land appears to be both a blessing and a curse for Shenzhen. Among the four first-tier cities of Beijing, Shanghai, Guangzhou and Shenzhen, it is the least reliant on land sales for revenue. Last year, the city sold 103 billion yuan (US$14.7 billion) worth of land, accounting for just 11 per cent of its revenue. By contrast, neighbouring Guangzhou generated more than 80 per cent of revenue from land sales, while Hong Kong received nearly 20 per cent of its revenue from land sales during the 2018-2019 financial year.

Shenzhen is the most likely and capable of breaking away from the land model that we learned from Hong Kong

Qiao Shitong

“Shenzhen is the most likely and capable of breaking away from the land model that we learned from Hong Kong,” said Qiao Shitong, assistant professor of law from the University of Hong Kong, who is an avid follower of Shenzhen’s housing reform. “It was the first to sell land use rights in an open market and land revenue contributed less to the city’s fiscal revenue almost a decade ago compared to other provinces when other industries thrived.”

But land has also been a major obstacle for Shenzhen’s ambition of building at least 1 million affordable homes by 2035 to accommodate young, talented professionals as well as low-income groups. The project requires 34 sq km of land, but by the end of 2017, Shenzhen’s construction had almost reached the limit of 1,004 sq km of allocated until 2020.

In its latest housing reform released last year, Shenzhen’s government suggested eight suppliers of affordable housing, including developers, government-affiliated institutes, financial institutions, social organisations, and landlords from urban villages, to help lower the government’s fiscal burden. But the plan met much criticism from analysts and even a former leader from Shenzhen.

“For public institutions without their own land, independent investment sources, or production income and profits, how can they become the main suppliers of independent affordable housing?” said Zhang Siping, Shenzhen’s former deputy mayor, in a 140,000 word analysis of the city’s housing issues.

Shenzhen has an ambition of building at least 1 million affordable homes by 2035. Photo: Sidney Leng

“Before the 1990s, there were cases in which the party and government organs and institutions used the state’s land and government investment to build dormitory rooms for their own employees, but this was a product under certain historical conditions [at that time]. After a few decades, how can we go back to the old way of building welfare housing?”

Another main criticism of Shenzhen’s affordable housing policy focuses on the exclusion of more than 8 million migrant workers. Under its current design, the city plans to make 60 per cent of total housing supply affordable, a third of which would be offered to high calibre professionals, another third for people that meet certain income limits, with the remainder available to be rented by residents with a lower level of income.

But almost all of the affordable housing requires a local hukou, a household registration closely related to social welfare, with only around a third of Shenzhen’s 13 million regular residents holding the proper document by the end of last year.

“Expanding Shenzhen’s affordable housing system to people with no permanent residence has been dragging on for nearly two decades, and the accumulation of contradictions has deepened,” Zhang Siping added. “For this reason, regardless of the difficulties and resistance encountered, the Shenzhen Municipal Government should resolve to solve this problem.”

Regardless of the difficulties and resistance encountered, the Shenzhen Municipal Government should resolve to solve this problem

Zhang Siping

For many migrant workers, from taxi drivers to food delivery drivers, more than 300 urban villages – neighbourhoods in the city built on technically rural land – have been their affordable homes for years.

“It’s like a sponge to hold all these people,” said Duan Peng, an architect who first came to Shenzhen in the early 2000s and spends his spare time photographing changes in the innercity villages. “So you can’t talk about affordable housing without addressing the issues of these urban villages that were doing essentially the government’s job to take care of these people.”

Based on official data, urban villages occupy around 320 sq km, or around a sixth of the city’s land, and offer close to half of its housing supply in terms of space.

When China abolished private land ownership in 1982 and later allowed local governments to convert rural land to urban land that could then be used for construction, farmers who collectively owned the rural land received only meagre compensation and had no rights to transfer their land. Instead they started building so called illegal homes which they sold or rented out. The legality of such buildings is controversial as they may violate the constitution even though they were endorsed by the local governments.

The revamp of Baishizhou, one of the largest urban villages in Shenzhen, officially kicked off at the end of June. Photo: Sidney Leng

Shenzhen’s stance on urban villages has gradually changed from extreme hostility to an accepted symbiosis over the years. In the 1990s, the government considered the villages urban cancers and intended to crack down with costly demolition projects. At one time, street level officials spent 6 to 10 million yuan (US$855,000 to US$1.4 million) a year monitoring illegal rural buildings and tearing them down, according to Qiao from the University of Hong Kong.

In the latest village redevelopment plan for 2019 to 2025, Shenzhen is looking to preserve a certain portion of buildings in urban villages while also renovating some to be included in the affordable housing system. Many, though, have already been torn down, leaving the lives of hundreds of thousands of people and their children up in the air.

“The key is how to reach consensus between villagers, the government and tenants. The complete revamp of urban villages will take a very long time. It could be more than a decade. That’s a big burden on developers and the government,” Qiao added. “What’s complicated is that villagers have different demands for legalisation and some don’t want it to be legalised.”

The revamp of Baishizhou, one of the largest urban villages in Shenzhen, officially kicked off at the end of June. In two months, close to 30,000 people left, and by mid-October, half of the original populations had relocated. In its heyday, the neighbourhood was home to around 150,000 people from corporate executives to restaurants waiters.

The revamp of Baishizhou, one of the largest urban villages in Shenzhen, officially kicked off at the end of June. Photo: Sidney Leng

Many shops on the main street started counting down with “last day sales” before they were evicted, with an electronic board displaying the average price of vegetables still showing the date of October 15, nearly a month after it closed.

The massive redevelopment of urban villages has in the past have also forced migrant workers to move from one village to another, each time slightly further away from the city.

Zhang Songmei, who came to Baishizhou in 2011 and opened a dumpling shop, still has not heard from her landlord when she will have to close, although as the days pass by, the number of customers visiting the once crowded night food market has dropped significantly.  

“The other day, somebody asked me, ‘will you like the new buildings?’ I said I like them, but I have no feelings for them, they only belong to a small group of people. We are just passers-by. We are part of Shenzhen’s urban development, but we are being excluded,” Zhang said.

“People like us are used to living in urban villages. The community is used to our business. Here, the cost of living is relatively low.”

Baishizhou will eventually become a modern community with shopping malls and high-rise flats. Photo: Sidney Leng

The redeveloped Baishizhou will eventually become a modern community with shopping malls and high-rise flats. Signs at the side of the road, displaying old photos of Baishizhou are accompanied by the tag line: “Today’s change is for a better tomorrow.”

As Baishizhou’s redevelopment started, Chinese media was flooded with stories of thousands of villagers becoming millionaires and even billionaires after receiving compensation from the government.

But there is another side of the story. Zhang Songmei visited a site in the Bao’an district in western Shenzhen in search of a new location for her dumpling shop. But a 20 square metre (215 sq ft) shop would cost her a monthly rent of 8,000 yuan (US$1,140), meaning she would need to sell 400 bowls of dumplings per month just to cover her rent before even considering other fees. In addition, there will also be new restrictions on cooking fumes. A native of Harbin, the capital of the northern most province of Heilongjiang, Zhang does not plan to get a hukou for Shenzhen.

“In a place where you cannot survive, what’s the point of getting a hukou? At the moment, our lives are on the line, a hukou is not important,” she said. “You love a place because you can afford a living there. We are part of Shenzhen’s economic boom, but we have got nothing in return. We don’t have any roots.”

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