China Affordable Housing Affords Opportunities for Naughty Officials

In the face of rocketing housing costs and rising public discontent, the Chinese government has been pushing to establish a public housing program to provide opportunities for ordinary citizens to buy homes.

In a not unfamiliar twist, a recent audit of the program shows that it is also providing opportunities for government officials and their associates to convert public assets into personal gain.

During 2012 China spent approximately RMB 880 billion on affordable housing, and according to a report by the National Audit Office which was published last week, about RMB 5.8 billion of these funds were misappropriated.

The report revealed that funds for 360 affordable housing projects were used by local governments to pay back debts or make investments in other projects. There were also more outright cases of graft with many families receiving multiple homes (China’s policy is to restrict households to one home in most areas), leasing out of whole projects by governments, and the more traditional embezzlement.

China’s affordable housing program was launched to provide opportunities for ordinary citizens to purchase their own homes in the face of the country’s sky-rocketing real estate prices. As speculation in real estate has driven home prices beyond the reach of many wage earners, the government has been facing increasing discontent from the public.

In February last year when Li was still vice premier, he asked the public to monitor the affordable housing program to ensure that the benefits were distributed in an equitable manner. Evidently, the Audit Office is also watching the RMB 412.9 billion that was directly invested by the government in the program, as well as the RMB 466.8 billion that was provided through bank loans, bonds and other sources.

China built 5.9 million new affordable houses for 9.53 million low-income families in 2012. However, the report showed that 108,400 households who received housing under the program did not qualify for subsidized homes, and 11,300 families managed to receive multiple houses.

In addition to the naughty householders, local governments got involved in the graft more directly by leasing out 34 projects (instead of selling them to families), and nearly RMB 5.8 billion was directly embezzled by local officials

And the graft found in the report may be an understatement.

In an interview with Bloomberg, Jinsong Du, a Hong Kong-based property analyst at Credit Suisse Group AG, said, “If there’s any surprise it should be that it’s so small,” Du said of the abuses. “This is probably a deflated number.”