Chinese authorities are rushing to quell public anxiety over plans to introduce new “housing pension” schemes that will help pay for repairs to the country’s aging housing stock.

Since 1998, homeowners in China have been required to pay into a housing maintenance fund, which is used to pay for inspections, repairs, and renovations to residential buildings.

But the government believes that the housing maintenance fund will be insufficient in the long term, as the massive glut of housing built during the height of China’s economic boom ages and requires additional inspections and repairs.

Nearly 20% of the country’s housing stock is now over 30 years old, according to official data, and this figure is forecast to rise to 80% by 2040.

Concerns over the safety of older residential complexes rose after the collapse of an apartment building in the central city of Changsha in April 2022, which resulted in 54 deaths.

Earlier this year, the government reiterated that it was prioritizing the renovation of old residential communities, with a particular focus on ensuring their heating, fire safety, and other essential facilities are up to standard.

The government plans to fund these extra inspections and repairs using a housing pension system, which will be financed through a combination of government payments and contributions from homeowners. More than 20 Chinese cities are already piloting local housing pension schemes.

Last Friday, the Ministry of Housing and Urban-Rural Development announced it was exploring plans to extend these pilot schemes to “create a long-term mechanism for managing the safety of buildings.” Shanghai has confirmed it will roll out a citywide housing pension scheme next year.

But the plans have sparked some concern among the public, with many asking whether homeowners will face a spike in costs due to the new system.

Officials have issued a flurry of statements to clarify the new policy and allay public fears in recent days. In particular, they have stressed that the housing pension schemes will only be partly funded by contributions from individual homeowners.

The pension schemes will be funded by two types of accounts: a “personal” account and a “public” account, Dong Jianguo, China’s vice minister of housing and urban-rural development, told a press conference last week.

The personal account will contain the capital that homeowners pay into the housing maintenance fund. But local governments will also set up public accounts that will be funded via revenue from state-owned land sales, central and local government subsidies, and other real estate-related taxes, according to state media reports.

On Monday, a media outlet under the Ministry of Housing and Urban-Rural Development again stressed that the main purpose of the housing pension system was to create these public accounts to provide additional revenue streams. It added that individuals will not be required to make additional payments.

“The housing pension system, which has been under consideration since 2022, has been seriously misunderstood,” the article stated.

However, with most local authorities yet to release specific details about how the new housing pension schemes will function, some homeowners believe that an increase in maintenance charges is inevitable.

“I think the idea behind this is good, but with local government finances already stretched, how exactly will the government ‘raise’ funds for these public accounts?” read one highly upvoted comment on Weibo.

It’s unclear how much money currently exists in most local housing maintenance funds. According to one report, these funds have received well over 1 trillion yuan ($140 billion) in deposits in total, and several major cities including Shanghai, Hangzhou, and Beijing have used less than 10% of the collected funds.

“Although the system … played a significant role in maintaining public areas and updating facilities like elevators, the funds have insufficient capital to cover the costs of safety maintenance and the renovation of aging communities,” said Yu Xiaofen, director of the China Housing and Real Estate Research Institute at the Zhejiang University of Technology.

The pilot scheme introduced by the eastern city of Ningbo in 2023 offers some clues as to how the new housing pension systems may work in practice. Under Ningbo’s trial scheme, if less than 30% of the initial balance in a “personal” housing pension account is remaining, local homeowners are required to promptly make additional payments to top up the fund.

This means that homeowners are likely to have to make additional payments to cover the cost of large-scale renovation projects in older residential communities in the future.

According to Yu, local governments are likely to create unified public accounts at the district or city level to fund their housing pension schemes, as a “one account per community” system would be impractical.

(Header image: VCG)