Somehow I’m not surprised that Chinese housing subsidies also mainly benefit the better-off

By now a fair amount of research has established that the U.S. tax deduction for mortgage interest, though often called a middle-class tax break, mainly benefits wealthier people. China differs from the U.S. in that it tends to deliver its subsidies less through the tax system and more through elaborate bureaucracies.

But some interesting new research indicates that China’s main main housing subsidy–a kind of “housing savings account” with an employer match–is also very unequal in its impact. These are what seem to be the key findings of a report on the housing fund by the China Institute for Income Distribution (Caixin has a summary of the report in English and Chinese; unfortunately I can’t find the full text of the report online):

  • About 124 million workers were paying into the housing fund in 2015, or approximately 40% of the urban workforce. Which means that roughly 60% of the urban workforce does not benefit from the subsidies available through the fund.
  • Coverage of the fund is also highly skewed to public-sector workers. About 90% of workers in public institutions (schools, hospitals) are covered by the fund, as are 70% of workers in state-owned enterprises (who generally have above-average incomes). But only 50% of workers at foreign-invested enterprises are covered, and only 10% at domestic private firms, probably because fewer private employers want to pay for the benefit.
  • The number of workers who actually use the money in the fund is relatively small, probably because the application process is difficult and takes several months. The report estimates that only about 30% of the workers who have ever paid into the fund have actually withdrawn money from it.
  • Use of the fund is also highly skewed by income. The report estimates that on an annual basis, 0.9% of workers in the bottom 20% of urban incomes withdraw from the fund, while 4.7% of workers in the top 20% of urban incomes do so.

Perhaps, despite the many other major differences between China and the U.S., the political economy of “middle-class” housing subsidies is ultimately pretty similar.

The caveat to this is that the housing fund is far from the only form of housing subsidy out there; since 2010 China has engaged in a massive government-sponsored effort to build low-income urban housing. But that program has also been dogged by suspicion that its cheap apartments go to people with connections rather than the deserving poor.

 

 

One Comment

  1. A couple more coveats: for almost all Chinese cities it is difficult to withdraw from the funds unless when you buy a house or leave the city to work somewhere else. For people who intend to work in a city long term but unable to afford a house (which is most people in non public sectors), the deducted housing fund has an effect of reducing disposable income. Of course the deduction lowers your income tax but again for domestic private companies the tax saving effect is rarely triggered due to low salaries. For so called middle class workers, the housing fund hence serves as (1) a tax saving tool,but only if you have such knowledge and ask employers to increase your contribution, (2) in the case of buying a house you can use the money in it. For low income workers they’re better off not having the housing savings account because they’re unlikely to get the money (dut to not knowing to how navigate the complex system), hence the money contributed by firms and workers are indeed dead in the pool

    Reply

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