The role of the housing provident fund in financing affordable housing development in China

Abstract

Since the adoption of the open door policy, the economy of China has been growing rapidly. Along with economic achievement, housing problems in major cities in China have remained largely unsolved. Under the traditional planned economy since 1949, all housing production was the responsibility of the State. Due to the lack of finance, new housing production has not been able to keep up with the increasing urban population. Urban housing reform introduced in 1988 proposed a strategy of developing affordable housing for the ordinary households through the private housing market. However the implementation of such a strategy has encountered a number of obstacles including the lack of a second hand housing market, an undeveloped real estate profession, unclear land and property legislation and an absence of proper property management support. Amid these obstacles, the lack of housing finance would appear to be at the core of the problem. In order to generate funding for housing development, the Chinese Government introduced the Housing Provident Fund (HPF) Scheme in Shanghai in 1991. Under the HPF, all employees were required to contribute a proportion of their salaries to HPF and employers contributed a similar amount. Accounts for individual workers were set up in the Construction Bank of China. Today workers are allowed to withdraw their HPF savings when they retire, alternatively they can use their HPF savings to purchase homes in the private housing market, or from the Comfortable Housing Projects. HPF is now implemented in most cities in China, although there are some variations in the operation of Scheme. By using an empirical study of the HPF Scheme in Shanghai, this paper reviews the role of the HPF in financing affordable housing development in China.