Over the past three decades, patterns of home ownership and trends in the housing market have swung wildly from one extreme to the other; the change has been dramatic, and the scheme of things continues to unfold.

Welfare Allocation

Before 1978, the year reform and opening up officially began in China, there was no such business as real estate, and the government assumed all responsibility in investing and developing new buildings. Since the government was more focused on industrial production, infrastructure and housing construction in cities lagged behind the increase of municipal population.

During the period from 1949 to 1978, housing plans and construction were financed by the government. Once a building was complete, rooms were allocated through work units to their employees with no financial obligation. So for those who desired an apartment, they had to first secure a full-time job. Usually, those married and having long work experience, more family members and a higher technical post were given priority in allocation. A symbolic sum of rent was supposed to be paid to the work unit. This sort of “welfare housing allocation” system relieved the burden of buying one’s own home, but some social problems arose. The population was large, and many were not able to secure a private residence. In large cities like Shanghai and Beijing, it was not unusual for several generations to live under one roof.

Housing Reform

By 1980, per capita living space was about 3.6 square meters in China’s urban areas, and housing conditions were in clear need of improvement. This factor drove the rapid expansion of the real estate trade, especially housing construction after 1978, when reform and opening up began.

In 1992, when the transition from a planned economy to a market economy was complete, the housing market was set for rapid expansion. Reform of the land use system facilitated the generation of large sums of capital for urban infrastructure construction.

Strong demand gave rise to general enthusiasm for “land enclosing” and real estate. That fevered ambition stimulated real estate markets across the country and, predictably, in some urban markets bubbles developed.

In 1998, welfare housing allocation came to an end, and the buying and selling of homes invigorated the real estate market.

Several years ago, a large-scale real estate development branded by the developers as “Tian Tong Yuan” was completed in the north suburb of Beijing. The moderate market rate of 2,160 yuan per square meter generated much buying and selling. The project was conceived to resemble a small town format, and its reasonable prices drew many buyers.

Before moving to Tian Tong Yuan, Mr. Jiang and his family lived in an apartment built in the 1960s. Four people were crowded into a 30-square-meter room allocated in the 1970s to his parents, and they had to share the kitchen and toilet with neighbors. Upon hearing of, and subsequently inspecting, the Tian Tong Yuan project, Jiang, then a company boss, bought a 200-square-meter duplex, greatly improving his family’s living conditions.

Some considering the proposition chose not to buy an apartment in the residential area because it was far from downtown, and not then well connected by mass transit. Today they may have come to regret that decision. Transit connections and facilities have improved and prices continue to rise – beyond the reach of some who considered a purchase.

Price Hike

Not long after Jiang moved into his new Tian Tong Yuan apartment, prices began to climb, particularly after 2002.

Some better-off investors came to buy and sell in the real estate market, and housing prices remained relatively high. In some countries it may cost the average person three to five times their annual income to purchase an apartment, but in China that rate may run 10 to 20 times the annual income of an average citizen. If the market is not adjusted, housing issues for city residents may not be resolved, and price hikes could prove problematic.

Since 2005, a series of policies aiming to better regulate the real estate market were conceived and implemented, but prices continued to rise.

Price hikes have discouraged many city residents, who feel that home ownership is not an easily obtained goal. Realizing that the vast majority of citizens wish to own their own home, and this goal may not be realized depending completely on the market, Guangzhou and a few other cities initiated a series of housing actions such as “Price Limited Housing” and “New Community.” In 2007 the government enacted policies to bring relief to city residents of relatively low income levels. In this way, a new housing supply system was put in place.

Pursuant to the system, lower-income citizens are provided with low-cost housing; families of medium-level income are provided with price-controlled housing; and high-income families obtain their housing on the open market.

Mr. Chen’s daughter was recently enrolled in a key high school located in the downtown area, an important commercial district in the city, near where Jiang had lived for many years. Jiang’s old house was removed and on the site now sits a new apartment building. For his daughter’s use, Chen purchased an apartment at the price of 50,000 yuan per square meter. Jiang was compensated more than 8,000 yuan per square meter for the removal of his old house. Some believe Chen spent too much on the place, but he expresses confidence that housing prices in the area will soon surpass 60,000 yuan per square meter.

During the past three decades, housing prices witnessed a hop, a skip and a big jump. There were some extreme swings, but that’s unavoidable in a period when an economy experiences rapid growth.

There is no such fairytale as upward only price trends. After the auction of land in Shenzhen, Guangzhou and other places aborted in sequence in the first half of 2008, housing prices revealed flexibility.

In accordance with some industry expectations, property developers are now not able to borrow “the Olympic concept” after the Beijing Games. In the past four years, the government put in place many regulatory policies concerning tax and land supply. It is still too early to say if Beijing housing prices will decline after the Olympic Games, but it is certain that those prices will be regulated.