INSTITUTE OF SOCIAL STUDIES
THE HAGUE
THE NETHERLANDS
UNIVERSITY OF ECONOMICS
HO CHI MINH CITY
VIETNAM
=======oOo=======
VIETNAM- NETHERLANDS
PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS
AN ANALYSIS OF HOUSING CREDIT PROGRAM FOR ·
URBAN HOUSEHOLD
CASE STUDY IN HCMC HOUSING DEVELOPMENT
BANK (HDBANK)
BQ GIAO D~C E>AO Tl;\0
TRUONG Dl;\1 H9C KINH TE TP.HCM
THUVIEN
•
1
A THESIS PRESENTED BY
DOHONGNGOC
IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE
DEGREE OF MASTER OF ARTS IN DEVELOPMENT ECONOMICS
SUPERVISOR
DR. TRAN TIEN KHAI
Ho Chi Minh City, February 2009
CERTIFICATION
"I certify that the substance of this study has not already been submitted for any
degree and is not being currently submitted for any other degree.
I certify that to the best of my knowledge any help received in preparing this thesis,
and all sources used, have been acknowledged in this dissertation."
Ho Chi Minh City, February 2009
Do HongNgoc
i
ACKNOWLEDGEMENT
i would like to express deeply my appreciation and many thanks to the following
individuals and organization helped me to finish this thesis.
Doctor Tran Tien Khai, the academic supervisor who has spent much time to give me his
guides, comments, assistance in this research.
All lecturer and staff of Viet Nam-Netherland master program which is helpful program
. for me to obtain the knowledge and the method of science studying with international
standard.
All my classmates, especiaily my group have encouragement, cooperation and help
during my stUdying and doing the thesis.
All ofmy family members have help and encouragement for me to try my best to finish
this research.
ii
ABSTRACT
VietNam is going on the way of modernization, industrialization and especially of
globalization with the purpose of economic development and enhancing the life standard
of the resident. This implies· to· increase further with a rise in the urbanization levels and
in the population along with increasing the demand for housing in urban of VietNam. To
. solve the d~mand of urban household, the government has many policies to support the
resident such as housing finance system from bank or other financial institution, housing
program for low inconie .. : This study only concentrates to analysis housing credit
program from bank for urban household on two major aspects. The first is the
determinants of probability to get a housing loan. And the second is the determinants of
housing loan amount. SO the household should improve their character and capacity to be
able to borrow housing loan from bank. Conversely, the bank also should have-suitable
. credit policy and condition for the customer to speed up effective and sustainable credit
development.
iii
TABLES OF CONTENTS
.·fi .
.
C ertl 1cat1on. ··················~····· ........................................................................................................... 1
Acknowledgement .................. :.................................................................................................. ii
Abstract ..................................................................................................................................... iii
Contents ........................................................................... :······· ................................................... .iv
List of tables and figures .......................................................................................................... viii
··Abbreviation .............................................................................................................................. ix
CHAPTER I·: INTRODUCTION .•...................·.................................................. ~ .................... !
.
.
1.1 Prob-em statement.. ~········································································································· I
1.2 Objectives ofihe stlldy ..~ ................................................................................................. l
1.2.1 General objective ........................... ~ ............................................................................. 2
1.2.2 Specific objective ....................................................................................................... 2
· 1.3 Research questions ...... ~·~··············································•···················································2
·1.4 SuJi:J.macy on rese8.rch· methQdology- and data ..............•............................................... 2
1.5 ·The organization of the thCsis ···~····················································································3
CHAPTER II: LITERATURE REVIEW ............................................................................... 4
2..1 TheOry ba~kground ......................................................................................................... 4
2.1.1 Major concepts ........................................................................................................... 4
Household
Credit
Borrowing
Household credit market
2.1.2 Banking theory ............·............................................................................................... 4
Credit management
Credit analysis and loan decision
. Issues in credit market
2.2' Experiences of housing development in some Asian countries ••..•.......••....... ;............. 7
2.2.1 In Singapore .... ;..................................................................................................... ,........8
2.2.2 In China .............................................................................................. ,....................... 9
2.2.3 In Thailand .................................................................................................................. 10
iv
2.2.4 In Korea .................................................................................................................... 11
2.3 Theoretical models and empirical studies for house demand ................................... 12
2.3.1 General observations ................................................................................................ 12
2.3.2 Determinants ofhousingloan.-.................................................................................. 13
2.3.3.Determinants of loan amount ................................................................................... 15
2.3.4 Theoretical models ................................................................................................... 16
The basic models ...................................................................................................... 16
:The extended models ........................ ;....................................................................... 16
2.3 .5 Empirical models applied in previous studies .......................................................... 17
CHAPTER III: RESEARCH METHODOLOGV............................................................... 20
·3·.1 AnalyticiJJ· framework ········~······················•·····································································20
3.1.1 Hypotheses .................... ,.......................................................................................... 20
3.1.2Detenninants ofthe probability ................................................................................ 20
3, 1.3 Determinants of loan amount ....................................................................................• 21
3.1·.4 Specific empirical models ......•................................................................................. 22
Model1 ....... _............................................................................................................... 22
Description of the model1 ....................................................................................... 22
Definition and explanation of variables of the model 1 ........................................... 22
Expected signs of the variables' coefficients ........................................................... 23
Model2 ..................................................................................................................... 24
Description of the model 2 ................. ,....................•.................................... ;............ 24
·Definition and explanation of variables of the model2 ........................................... 24
Expected signs of the variables' coefficients ........................................................... 25
3.2 Data source· aild sa~pling............................................................................................. 26
3.2.1 Data source ............................................................................................................... 26
Where is data source? ... :........................................................................................... 26
. Its
. va•I..d.Ity?....................._.............................................................................. . 26
.What-Is
When are they collected? ......................................................................................... 26
. Population .. :.... :........ ;................................................................................................ 26
3.2.2 Sampling ..........................................................................................................•......... 27
v
.sample size ............................................................................................................... 27
Sampling method ....................................................................................................... 27
3.3 Analysi-s methods ······~····································································································29
3.3 .!Statistical tests for descriptive analysis ..................................................................... 29
3.3 .2 Correlation analysis .................................................................................................. 29
3.3.3 Statistical tests for validity of specific models ......................................................... 30
.
.
.
.
3.4 Analysis· too1 ........_...................................... ~ .................................................................... 30
CHAPTER IV: ~SU~TS AND DISCUSSION ....................... ,.......................................... 31
. 4.1 Situation ofhousingcreditprogram for urban household in Ho Chi Minh City ... 31
4.1.1 Housing demand of urban household ....... :............................................................... 31
4.1.2 National strategy on housing up to the year 2010 .................................................... 31
4.1.3 The overview of urban finaricial system, borrowing by urban households and
.housing finance project. ...................................................................................................... 32
Financial system and source of credit to urban households in VietNam ................ 32
Overview ofborrowing by urban households .......................................................... 32 ·
4.1.4 HCMC Housing development program .................................................................... 35
4.2 IiCMC Housing D-evelopment Bank ·························~······-············································35
·4~2.l.Overview
ofHDBank ............................................................................................... 35
4.2.2 Housing credit program ofHDBank ........................................................................ 38
4.3 HCMC ·aousing D.eveloprri.ent Bank ·····································································~·····40
.4J~1Analysis
ofborrower' characteristics ....................................................................... .40
4.3.2 Correlation.analysis ................................................................................................... 44
4.3.3 Statistical tests for validity of specific models ........................................................ .47
4.3 .4 Description collecting data and choosing suitable method ..................................... .48
·4.4 .Results ·of ~odels
~esting
and explanation .................................................................. 49
4.4.1 ·:Empirical result- Model I .................... ;.................................................................. 49
4.4.1.1 Enter method ................................................... ;............................................ 49
4.4.1.2 Backward LR method ............................... :........................... ;........ ;· .............. 50
vi
4.4.1.3 Analysis the factor affect to the probability to get housing loan for
household .................... :...................................................................................................... 50
4.4~2 Empiricalresult- Mod.el2 ............ :.......................................................................... 54
4.4.2.1 Enter method ................................................................................................ 54
4.4.2.2 Backward LR method .................................................................................... 54
4.4.2.3 Analysis the factor affectto the probability to get housing loan for
household ............................................................................................... ,.................. 54
CHAPTER V: CONCLUSION AND IMPLICATION ....................................................... 58
5.1 Conclusion on the applied methodology and limitation ....•..•....•.••.•.•..•.........••.......... 58
5.2Conclusi0n On the studie.d results ................................................................................. 58
5.3 Po.licy impli~ation in. macro levCI ................•................................................................ 59
5.4 Policy implication for HDBank as well as housing credit program •...•..••.........••..... 59
References
Annex
vii
LIST OF TABLES .
Table 1.1: Compare mean of variable
Table 1.2: Correlation Matrix
Table L3: Durbin:_ Watson in model!
Tahie 1.4: Durbin- Watson in model 2
Table 1.5: Regression result of model 1 from step 1 to step 6 by back ward method
Table 1.6: Regression result ofmodel2 froni stepl to step 6 by back ward method
LIST OF FIGURES
Figure 2.1: Structure ofprobability to get housing loan
Figure 2.2: Structure of samples possibility to get a housing loan
Figure 2.3: Growth oftotal assets and chartered capital in HDBank
Figure 2.4: Growth ofloan outstanding debts in HDBank
Figure 2.5: Outstanding ofhousing credit program and total loan outstanding in
HDBank
Figure 2.6: Regression standardized residual
LIST OF ANNEXS:
Annex 1: T-Test result
Annex 2: The result of model 1- Enter method
Annex3: The resultofmodell- Backward method
Annex 4:Theresult ofniodel2- Enter method
Annex 5: The result ofmodel2- Backward method
viii
·ABBREVIATION
HDBank: Housing Development Bank
ADB: Asian Development Bank
SBV: State Bank of VietNam
SOB: State Owned Bank
· DLH: Department of Land and House
ix
CHAPTER 1: INTRODUCTION
1.1 Problem statement
The world is flat on all fields by globalization, information technology development
especially in the economic field. Viet Nam also follows this tendency by joining
econoinic organizations in area as well as in the world such as AFTA, WTO ...
Economic development and reforms in the sector has brought increased urbanization.
Urban population is expected to increase further with a rise in the urbanization levels
and in the population. In a research of JBIC (1999) stated that VietNam has been
experiencing rapid urbanization owing to economic development after the Doi Moi
policy, and urban population is predicted to increase to 46 million in 2025 from 15
millionin 1995,
· Urban development and housing sector, especially in Hanoi and HCMC, is urgently
challenged by swelling migration from rural· areas, expanding informal settlement,
emerging .relocation needs by inner-city redevelopment, accelerating reform of SOEs
that provided their employees with houses. This implies demand for housing would
increase at a faster pace in urban VietNam in the short term to medium _term.
To solve urban development and housing problem for the resident, Viet Nam is
learning valuable lessons from other country's different models of housing
development. Vietnamese authorities clearly organized and exposed a particular plan
such as urban development policy, real estate institution, housing development and
housing finance... With· housing finance, the authority specifies two aspects are
municipal housing fund and housing finance facility. In municipal housing fund,
respective "Housing fundl' was establish in the early 1990's in HCMC and in 1998 in
Hanoi; These funds mobilized capitals primarily from the sales revenue of the former
state-owned houses, and are used for housing finance. Another facility named HIFU
was set up in HCMC in 1997. HIFU mobilizes capitals from bank loans, equity and
trust fund entrusted by the People's Committee, and it invests in urban development
including housing projects of the public developers. Besides that, housing loan
activities are chiefly supplied by state-owned commercial bank, private joint-stock
bank, municipal fund ...
This study just concentrates to analyze housing finance especially housing credit
program for household. In real, a large of the urban population lacks access to
affordable finance for housing construction or improvement, so they have to resort to
informal sources such as moneylenders, friends, relatives and credit associations ... So
investigating the determinants of access to credit and the determinants of loan amount
1
help household and· bank have change to quickly find the common result. It means
that the household satisfy bank's·loan condition to get the housing loan and the bank
has housing creditto the customer safely and effectively.
Another further issue concerns this study is the housing finance project will set up a
facility to provide mortgages and loans for urban low-income and poor people to
improve their property or build or buy new homes. It will also promote institutional
strengthening and capacity building to develop VietNam's housing finance system.
1.2 Research objectives.
1.2.1 General objective
Analysis of housing credit program for urban households by analysis the
probability of credit for household and. the deteirninants affeCt to loaiiamomil
1.2.2 Specific objective
. , The demand of house and housing system in urban VietNam.
--
- The demand of housing loan of urban household.
- The_ ~eterminants of housing credit program for urban household including·
probability of credit and loan value.
- The research analyzes the relationship between urban households and credit
market to find -out relation of characteristics and endowment of urban
households and characteristics of loan to chance to borrow, loan amount.
"' Enrich our knowledge on credit market and borrowing by household in Viet
Nam, particularly in housing credit program.
- The effective of the housing finance project to the low-income and poor
· people artd contribute the economic growth in VietNam.
- In addition, housing finance project do strengthen and capacity building to
develop VietNam's housing finance system.
1.3 Research Questions
_ How is the housing demand of urban household?
.What are the determinants of housing credit program for urban household?
How does the credit especially housing credit program contribute the economic
development and economic growth?
2
1.4 Summary on research methodology and data
The method is used, including statistical and descriptive analysis, review of historical
·trends, and·. comparative methods. Apart form, quantitative method is extensively
used;
Data is used in the analysis from the core banking of HCMC Housing Development
Banlc
1.5 Strcuture of the thesis
The thesis consists of five chapters, following chapter 1, the rest of the structure as
follow:
. Chapter 2: Literature review
Chapter 3: Research.methodology
Chapter 4: Result arid discussion
Chapter 5: ·Conclusion and Implication
3
CHAPTER II: LITERATURE REVIEW
2.1 Theory background
·. 2.1.1 Major concepts
Household is area of concern in social science. Concept of household is defined and
discussed by economists, feminists and anthropologists. Ringen (1991) defines of
household that as is a group of at least two people pools their incomes and uses income
collectively.. In house holds, income is not split up.between household members for each
to use his or her · share, at least not all of it. In large .measure, household members
cooperate on the use of income and thereby get more out of their income than they could
if each had been on his or her own .. However, there is much controversy over the
boundary of this definition. Generally, economists view household as an essential unit of
analysis and develop theory based on modeling behavior of household. There are two
themes of economi~ model of household behavior. The first treats consumption and
produce separately or simultaneously in an integrated model. The second emphasizes on
market condition, and relationship between household and market for land, labor, and
credit.
Credit is the trade of money, goods or services at the present time for a payment in the
future. Credit can be provided in many different forms and under a wide variety of
. arrangements (Kinnon Scott, 2000)
Borrowing is one side of credit. In general, borrowing is defined as that to be transferred
property right on a given object (e.g. sum of money) in exchange for implementing
. obligation of a claim on specified object (e.g. a certain sum of money) at specified point
of time in the future .. In extension of this definition, borrowing by households,
particularly Urban household is defined as activities of households to obtain external
resources to support other household activities with obligation to repay in future. In other
way, borrowing is made by household to finance household's budget deficit.
Housing credit market the presence of heterogeneity among different household induces
to situation whereby households fall into
budget deficit while some others are in budget
.
surplus. Therefore, the deficit households desire to borrow in order to cover their deficit
while surplus households also desire to lend out for their interest. Consequently,
. household credit market is established to facilitate borrowing and lending of households.
Credit. market function is to transfer
purchasing power from surplus households to deficit
.
. ones by issuing and acquiring of money-denominated debt.
.
.
.
. 2.1.2 Banking theory
Credit management: how to determine the creditworthiness?
4
In credit scoring method, the creditworthiness can be measured by the values basing on
the characteristics. However, there are some core factors that are usually used in credit
management (Kapoor, Dlabay, Hughes, 2001). They are:
Characte~:
the borrower's attitude toward his or her credit obligations.
Capacity: the borrower's financial ability to meet credit obligations.
Capital: the borrower's assets or net wealth.
Collateral: a valuable asset that is pledged to ensure loan payments.
Conditions: the general economic conditions that can affect a borrower's ability to
repay a loan. ··
Access to credit in this research can be understood as two components:
The probability to get credit from bank for household.
In case of the household can get the loan, the size of the loan is also one
compop.enf in access to credit.
Credit analysis and Loan decision
Purpose of credit analysis:
Credit analysis is a process of collecting information, analyzing information with
sciences method for the aim to understand clear about clients and their business projects,
serving process of short-term loan decision. Credit analysis is an important step with the
purpose using to make loan decision: accept or reject issuing credit. In order to make
credit decision banks must do three steps following:
Collecting sufficient & accurate information.
Analyzing and processing data collected.
Predicting ability of repaying seed and interest of household.
By credit analysis, banks can replace their experiences about household and their project
applied for loan with scientifically argument and evidences rely on information and· data
processing. Therefore,· credit analysis help banks avoiding two types of mistake: (1) give
credi(for bad client, (2) and rejecting the good one.
Information usingfor credit analysis
Collecting good information is. initial necessary when carry out credit analysis;
·quaiification of data analyzed have significant effected to result, by this, it is effected to
loan decision, the quality of data is noticed with three attributions: (1) sufficiency, (2)
timely, (3) accurately.
5
Analysis contents: analysis should be targeted evaluation of capacity repaying loan that
mean, it evaluate whether customer can repay seed money and interest or not. To
·appreciate repayment capacity of company, we have to determined factors effecting to
customer's repaying-debt capacity. In other hand, credit analysis contents should be
concentrated into analyze factors effecting to ability to meet obligation. Basically, ability
of repayingloan is influenced by:
Finance situation.
Practicability and effectiveness of projects.
Customer's attitude to refund debt.
Issues in credit market
.- .Chung (2000). Credit rationing is a condition of loan market in which the lender
supply of fund is less than borrower demand at the quoted contract term. In other
words, it means that there is excess demand. In credit market, credit rationing
appears to be an inefficient situation of credit market, where interest rate does not
work well to balance supply and demand sides.
There are two major ways to explore causes of credit rationing. Firstly, traditional
. view:s consider credit rationing resulted from government interventions on credit
market by imposing interest rate ceiling on lending institutions. Interest rate is
exogenously held under market clearing leveL With interest rate keep artificially
low, some poteritialborrowers
who want to borrow are rationed. Secondly, after
.
..
the demise of the traditional theories, a new approach to credit rationing was
developed. The new approach argued that permanent credit rationing is
considered as an equilibrium phenomenon rather than a temporary phenomenon.
. Modem theories identify problems of moral hazard and adverse selection in credit
market as a source of credit rationing when information is distributed
. asynimetrically among market participants.
.
Fragmentation of credit market strongly affects the borrowing· behaviors of urban
households. Fragmentation of credit market, firstly, is thought as a consequence
of the repressive government policy. Ceiling rate on deposit and loan rate
imposed by central bank induces to severe credit rationing in formal financial
sector. Resulting from inter-linkage between formal and informal financial
markets the.unsatisfied demand of households for formal loan flows into informal
financial sector and put demand for informal loans to rise up. Secondly, it is
viewed that fragmentation of household credit market is caused. by structural and
institutional features of credit market in developing countries. In addition,
fragmentation of credit market may also result from weakness in the infrastructure
6
that supports the financial system. Thirdly, another perspective on fragmentation
of credit market argues that formal and informal financial sectors are parallel
developed because they serve different segments of credit market.
In conclusion, under perfect credit market, borrowing, along with saving, allows
urban households to maximize their utility overtime. Resources or endowments,
incomes, and activities of households determine the demand for loan. The effects
of those factors on the demand of urban households for credit are called "demand
side effectsi'. On the other hand, credit market conditions and relationship
between urban households and financial intermediaries affect borrowing by urban
households. If credit market is inefficient; some of potential household borrowers
fail to access to credit market. Therefore, severity of credit rationing is an
explanation for credit constraint of urban households; and high fragmentation of
credit market is an explanation for various borrowing behaviors of urban
households. Borrowing by urban households is substantially determined by
condition of credit market so called "supply side effects". Thus, borrowing by
urban households is jointly affected by both demand and supply side factors.
2.2 Experiences of housing development in some Asian countries:
As with Latin America and Africa, the number of urban residents is fast .expanding in
Asia. Asia is also home to the largest concentration of poor people in the world
(Chapman et al, 1999; Montgomery et al, 2001). About a quarter of the total urban
population in Asia is living below the poverty line although the proportion may be higher
in some countries. India and China· each holds about a third of the region's urban
population with many living in relative poverty. (Jacquemin, 1999). Of the 12 million
people in Mumbai, for example, about 50 per cent lives in slums, dilapidated houses and
.on pavements. In the extreme, they join the number of homeless people, estimated to be
in excess of 100 million in the world (UNCHS, 1999). In one recent estimate, Asia alone
will need to Invest a sum of US$280 billion a year over the next 30 years to meet the
basic needs · of the population in housing and other urban sectors (Brockman and
Williams, 1998).
.
·
.
T~e
lack of housing access is one of the most serious and widespread consequences and
causes .of poverty ili Asian cities. The· improvements in housing that are important to
improving the quality of life ·among the poor often does not receive the attention they
· deserve from policy makers (Daniere, 1996). To make any appreciable improvement,
substantial government spending is needed, both in the physical expansion of the city's
infrastructure and implementation of poverty alleviation programs. Buttressed by the
. heritage of literature that argues the importance of affordable and improved housing in
7
· urban poverty reduction (see, for example, Mitlin, 2001), the immediate research issue is
how poor families can access urban shelter more affordably.
·
Experience for VietNam from other countries in Asian as follow:
2.2.1 In Singapore
.The Singapore public housing development has attracted keen research interest (see, for
example, Wong and Yeh, 1985; Yuen et al, 1999) but few have clarified the public
housing-urban poverty nexus. This provides the starting point for the present analysis of
the performance of housing development.
· Follow by Global urban development magazine in Singapore (GUDS, 11/2007), in a
fundamental perspective, without parallel economic development, the housing
improvements would not have advanced so dramatically. Deliberate action was taken to
. diversify the economy and provide employment in Singapore. With economic growth, the
nominal household income had increased. Real GDP had grown at an average of 8.6%
per year over the 30-year period from 1965 to 1999. This had fuelled growth in real per
capita GDP from S$4000 in 1965 to S$32,000 in 1999 (while inflation remained low,
around 2 to 3% per year). At the household level, the average monthly household income
increased. As Ng and Yap (2001} illustrated, from 1988 to 1998, average monthly
household income. had increased by 6. 7% per year, leading to higher asset ownership.
The proportion of homeownership public flats expanded from 26 per cent in 1970 to 92 per
cent ofthe housirig stock by 1999.
Although the financing of public housing draws from the general background of the
country's economic progress,· Singapore's experience also demonstrates the employmentgeneration potential of this sector. By 2000, the HDB (Housing Development Board of
· Singapore was established in the beginning of year 1960) in providing a total housing
environment forallwho lack has initiated the construction of more than 850,000 dwelling
units, 19,500 commercial premises, 12,800 industrial premises, more than 1460 schools
and community facilities, 45 parks, 17;347 markets/hawker centers, and numerous car
parks. The construction of these facilities while providing improved housing and better
quality of life for the poor has created construction jobs and has· a high multiplier effect.
Reflecting on the economic impact, some housing scholars such as Sandilands (1992)
have described the construction sector as a leading sector since its growth rates are above
the rate of growth of overall GDP. Others have written about the pump priming effect of
public sector housing construction (see Krause et al, 1987).
As with many other cities, Singapore's quest to provide its poor residents with good
living environment is not new. Adequate shelter with the promise of a decent life of
dignity, good health, safety, happiness and hope is one theme that has been repeated
internationally and enshrined in successive United Nations declarations (see, for example,
8
UNCHS, 1998; 1999; World Bank, 1993). The Singapore development expenence,
however; shows thatpublic housing (even: high-rise) for the lower income families need
not degenerate irito polarized and marginal environments. Nonetheless, the reemergence
of the homeless underscores the urgency for further research. In particular, the trend
towards taller housing presents challenges The poor of Singapore do not have the
alternative to opt out of this housing. In this regard, we are reminded of Mitlin's (2001,
p512) exhortation to understand and follow the realities of the poor in the continuing
effort to create affordable housing that seek to address their diverse needs.
In sumrilary, Singapore's system of housing development with a single empowered
authority responsible for housing delivery may not be the model for all countries, but
effective pragmatic management principles (such as inclusive housing and widening
homeownership opportunity for lower-income families, directed assistance for lowincome· renter households and continual review of housing access) apply in most
contexts. There is a growing literature that emphasizes a comprehensive approach to
housing. Similar to situation of China and Thailand or other Asian countries, VietNam
can get the most suitable lessons for housing market and policy in the way of economic
development.
. 2.2.2 In China
China's housing market and policy context are relatively unique, differing from those of
the urope and the US, including the post-Communist countries (Wang and Murie 1999,
·Naughton 1994). This section therefore review China's homeownership-oriented housing
polices. In this section and throughout the paper the discussion focuses on urban housing
·policy olily be.cause. of the different rules and institutional arrangement governing
. housing hi rural and urban areas.
. Privatization
As economic· reforms deepened in the 1990s China's policymakers sought to privatize
much of the publicly-owned housing stock that had been previously rented from the state
or state-owned enterprises (SOEs). In doing so the government was motivated by a
number of factors, foremost of which was the fact that maintenance cost levels ran well
above the nominal rents paid by tenants; Zhang (2003) cites figures indicating that as of
.1991 rent on government-owned housing averaged 0.13 ¥/m2 of living space (enterpriseowned housing was even cheaper) while upkeep expenses averaged 2.31 ¥/m2. Under
·these conditions housing costs accounted for only 1 percent of the average worker's
earnings.
Inl994 the Housing Reform Steering Group of the State Council unveiled several
9
reforms designed to encourage the development of housing markets. Liu, Park, and
Zheng's (2002) analysis of the relationship between housing investment and economic
growth found significant positive relationships over both the short and long runs: another
important policy motivation for spurring development of housing markets.
Housing Provident Fund
The Housing Provident Fund (HPF) was designed in 1992 to help wean employees from
workplace housing provision. As such, it was paired with reform of the salary system.
Instead of providing housing directly and paying employees a correspondingly lower
. salary, the progranfs goal was to enlist public sector employees in the development of
the coriunercialliousing market by raising their incomes but siphoning the increase into
savings accounts dedicated to housing~ while reducing their in-kind housing benefit,
thereby encouraging them to find housing in the marketplace (Wang 2001). The reform
was part of a more general effort to have individuals and markets replace government and
.work units as the entities responsible for housing finance (Lee 2000). Because employer
participation is not mandatory in the private sector, the primary HPF beneficiaries are
government, party, SOE, and other public sector workers, although some private firms
and foreign joint ventures also match employee contributions.
In a recent overview of China's housing policy, Sun (2004) criticizes the targeting of the
HPF system. This is. reinforced by the fact that even most working lower-income
households are not in the kind of official, full-time, and typically public sector positions
likely to carry an HPF benefit. ·
Affordable Housing
The other principal homeownership-oriented public policy is the development of
'affordable housing' (Jingji Shiyong Fang or 'economic and comfortable housing'). The
policy is designed for lower-middle- and middle-income urban residents and involves
·government subsidies and profit caps for developers.
2.2.3 In Thailand
.In May 2005, Veerachai Veerametheekul, Vice Minister of Finance, Khan Prachuabmob,
President of· Government Housing Bank, Pomsak Boonyodom, National Housing
Authority Governor; Kitti Pattanapongpiboon, President of Housing Loan Association
and Ballobh K.rittayanawat of the Government Housing Bank, represented Thailand at the
"More Than Shelter: Housing as an Instrument of Economic and Social Development",
an international conference organized by Harvard University's Joint Center for Housing
Studies (JCHS) in Bellagio, Italy. Important leaders from four other countries, including
· the USA, Mexico, South Africa and :kenya also attended the conference. After the
conference, the participants from five countries endorsed the "Bellagio Housing
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