From Welfare Housing to Mortgage Debt: China’s 50-Year Property Transformation

In 1978, the average urban Chinese person had only 3.6 square meters of living space, even less than the 4.5 square meters recorded in 1950. Nationwide, 8.69 million urban households lacked adequate housing, accounting for 47.5 percent of all urban households at the time. 

Against a backdrop of steadily increasing urban populations and chronically insufficient residential construction, housing shortages were among the most widespread everyday experiences of that era.

Over time, Chinese people went from “housing allocation” to “buying homes,” and then to “property speculation” and “choosing homes”—a fifty-year process of shifting responsibility. The state and work units once directly assumed responsibility for providing and allocating housing. 

Later, the Chinese Communist Party retained ownership of land and control over land supply, while shifting the responsibilities of purchasing housing, taking out mortgages, preserving property value, and bearing risks onto households. During the period of rapid real-estate growth, local governments, developers, banks, and households became tied into the same land-finance-urban expansion machine. 

Today, as population trends, debt levels, housing stock, and market expectations have all changed, the ultimate risks are increasingly returning to ordinary households in the form of insufficient liquidity.

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Housing allocation: Why was ‘welfare’ in short supply?

Housing resources were allocated through the organizational system. Years of service, position, professional rank, marital status, household size, and whether both spouses were employed could all be used as criteria for determining the order of housing allocation. Those with longer service, larger families, or positions in better-resourced work units were more likely to be placed on the lists for workers’ family compounds, employee dormitories, and welfare housing.

Therefore, welfare housing allocation certainly did not mean that “everyone had a home.” What it provided was a limited and hierarchical form of welfare. It did allow some urban workers to obtain housing at extremely low cost, but it also tied living conditions closely to organizational status, administrative rank, and the resources of one’s work unit.

The experience of mathematician Chen Jingrun illustrates this particularly well. In the late 1970s, he was still living in a roughly 6-square-meter single-room dormitory at Building No. 88 in Zhongguancun. It was a tongzilou—a corridor-style apartment building shared by several institutes of the Chinese Academy of Sciences. Many single employees found it difficult to move out even after getting married and having children, while stoves lined both sides of the corridors.

Later, after Hu Yaobang personally inspected his living conditions, the Institute of Mathematics managed to arrange for Chen Jingrun to move into a 16-square-meter, south-facing room. At the time, even a scholar who had already become famous throughout China needed intervention from senior administrative officials to improve his living conditions by just a dozen square meters or so. Ordinary families had even fewer choices.

Housing in the era of welfare allocation was therefore highly organized yet chronically scarce. Individuals had neither meaningful property rights nor genuine freedom to choose their housing.

Buying a home: How many generations would it take?

1998 was a crucial turning point in China’s housing system. In July of that year, the State Council issued the Notice on Further Deepening the Reform of the Urban Housing System and Accelerating Housing Construction (State Council Document No. 23 [1998]). It called for ending the in-kind allocation of housing and gradually shifting to monetary housing benefits, while developing housing finance, fostering and regulating the housing transaction market, and establishing a multi-tiered housing supply system.

Official narratives often summarize this reform as an end to welfare housing allocation, allowing residents to improve their living conditions through the market. In the past, work units directly built, maintained, and allocated housing, and therefore also directly bore the costs associated with housing shortages and welfare provision. After the housing reform, work units were gradually relieved of their broader social-service responsibilities, while employees entered the commercial housing market through wages, housing subsidies, housing provident funds, parental support, and bank mortgages.

In other words, responsibility for housing shifted from the work unit to the household, while housing risks also shifted from the public system to private families. In the past, when a family had no housing, people would first ask: Why hasn’t your work unit allocated you an apartment? After the housing reform, the questions became: Have you saved enough for the down payment? Can your parents help? Who will pay the monthly mortgage?

This was the most profound change brought about by the marketization of housing. Structural problems that had previously been closely tied to work-unit resources, land supply, the household-registration system, and access to urban public services were transformed into questions of a household’s own ability to pay.

The housing reform certainly enabled many people to obtain property rights and improved urban living conditions. In 1998, the average urban residential floor area per person was 18.7 square meters, rising to 31.6 square meters in 2010. These two figures use a different statistical definition from the “living area per person” figure cited for 1978 and therefore cannot be directly compared. Nevertheless, they illustrate that urban housing conditions did improve substantially amid the combined effects of housing marketization, urban expansion, and rapid growth in residential investment.

From then on, “down payment,” “housing provident fund,” “mortgage,” “monthly payment,” “commercial housing,” and “second-hand housing” became part of ordinary family conversations. Young people getting married no longer waited for their work units to allocate them an apartment; instead, they had to calculate the down payment. Parents who once helped their children mainly by caring for grandchildren now also had to draw on their savings to help purchase a home at crucial moments. For many couples, marriage also meant taking on two or three decades of joint debt.

After the 1998 housing reform, the home changed from a work-unit welfare benefit into a family project—one that often required the combined financial contributions of two or even three generations to complete.

70-year property rights: The state retains the land, while families take on the debt

When discussing China’s real-estate sector, it is impossible to avoid the issue of “70-year property rights.” A 1988 constitutional amendment explicitly established that land-use rights could be transferred in accordance with the law. In 1990, the State Council’s Interim Regulations on the Assignment and Transfer of the Right to Use State-Owned Urban Land stipulated that the maximum term for the grant of land-use rights for residential purposes was 70 years.

Therefore, strictly speaking, the commonly used term “70-year property rights” does not mean that ownership of a house lasts only 70 years. Urban land is owned by the state. Homebuyers acquire ownership of the house itself, together with the right to use the residential construction land on which it stands; the maximum term for the grant of residential land-use rights is 70 years.

This is at the heart of China’s real-estate political economy. The Chinese Communist Party did not privatize urban land, nor did it continue to have work units directly build and allocate housing. Instead, under a system of state ownership of land, it created a commercial housing market through the granting of land-use rights.

Local governments control the supply and granting of land. Developers profit through land acquisition, financing, construction, and sales. Banks expand credit through development loans and individual mortgages. Households, meanwhile, use down payments and long-term monthly mortgage payments to acquire homes and the associated rights to use the land.

Local governments do not permanently sell the land, but they can grant land-use rights again and again. Developers use land as the starting point for leveraging financing. Banks connect households’ future income—often over the next two or three decades—to the financial system through mortgages. Ordinary people, in turn, take on long-term debt in exchange for a place to “put down roots” in the city.

This is one of the major ways in which China’s real-estate system differs from those of many market economies: land ownership remains in state hands, while the burden of housing prices is largely borne by households. The financing of urban expansion and the cash flow of the financial system have, to a considerable extent, depended on residents continually taking on greater leverage to purchase homes. As a result, what is called “buying a home” was never simply an ordinary consumer purchase.

Article 359 of China’s Civil Code provides that when the term of the right to use residential construction land expires, it is automatically renewed. The payment or exemption of renewal fees is to be handled in accordance with laws and administrative regulations.

Therefore, the claim that “the house will definitely be taken back after 70 years” is a misconception. But the claim that “renewal after 70 years will definitely be free” likewise has no clear legal basis.

Consider the experience of a Wenzhou resident, Mr. Wang, in March 2016. He had paid 658,000 yuan for a second-hand apartment, but when he went through the ownership-transfer process, he discovered that the previous owner’s land-use certificate had expired on March 4.

When Wenzhou granted land in the 1980s and 1990s, the local authorities sought to ease developers’ financial pressures by granting some residential land with a 20-year rather than 70-year land-use term.

The local land authorities initially proposed that homeowners would have to pay the land-grant fee again in order to renew the land-use right. The estimated cost was about 300,000 yuan, nearly half the property’s purchase price.

This triggered a nationwide debate over the meaning of “70-year property rights.” Article 149 of the Property Law explicitly stated that residential land-use rights would be “automatically renewed,” but the law did not clearly specify whether renewal would require payment—or, if so, how much.

The issue remained unresolved until December of that year, when China’s Ministry of Land and Resources stepped in and stated that in Wenzhou and other areas, homeowners could renew without an application or payment and proceed with normal transactions. This temporarily calmed the controversy.

However, this was only a “transitional arrangement,” rather than a final legislative solution.

The case illustrates a gap embedded in the 70-year land-use-right system from the outset: the system never clearly established who would ultimately bear the costs associated with renewal. That unresolved gap could eventually create difficulties for ordinary families who buy homes.

More importantly, the challenges ordinary families face are not confined to some distant point 70 years from now. They are already present today: the remaining term of land-use rights, the age of the property, the length of the mortgage, housing maintenance, urban redevelopment, population movements, and future demand for transactions will all interact to determine the real-world value of a home.

Property speculation: ‘Buying a home means guaranteed profit?’

After 1998, real estate did not immediately become a nationwide wealth-creation myth. In the early years of the housing reform, many people were still unaccustomed to spending large sums of money to buy a home. Under the old welfare-housing mentality, housing was supposed to be provided by one’s work unit. Spending decades of savings and then taking on a mortgage to buy a home did not necessarily seem worthwhile. The housing market, mortgage system, property-rights transactions, and the psychology of residents all needed time to adjust.

Later, several forces converged, contributing to rising housing prices: accelerating urbanization, migration toward cities, expanding housing supply, the spread of mortgage lending, construction of new urban districts by local governments, improvements in infrastructure, and the continued concentration of education, healthcare, and employment opportunities in cities.

Commercial housing was thereby drawn into a much larger growth strategy. Local governments needed land sales to finance urban development, infrastructure investment, and the expansion of new districts. Developers needed to continually acquire land, raise financing, presell properties, and reinvest. Banks needed long-term, large-scale credit assets. Industries including steel, cement, home renovation, furniture, household appliances, and property management depended on sustained demand from the real-estate sector. Families, meanwhile, needed a home in which they could get married, raise children, send them to school, receive medical care, and prepare for retirement, while also expecting the property to appreciate in value.

The home thus ceased to be merely a place to live. It became a hub connecting land, local-government development, financial expansion, and household savings.

After this mechanism operated for many years, local governments became increasingly dependent on land-related revenues. Between 2012 and 2023, land-sale revenues accounted for an average of 34 percent of local government fiscal revenue, reaching 43 percent in 2020. But this dependence has weakened significantly in recent years. National revenue from the sale of state-owned land-use rights fell from 8.5 trillion yuan in 2021 to 5.8 trillion yuan in 2023, a decline of 31.7 percent.

This means that when the housing market cools, it is not only homebuyers and developers who are affected. The fiscal capacity of local governments also comes under pressure at the same time.

In 2012, nationwide commercial housing sales totaled 1.11304 billion square meters. By 2016, that figure had risen to 1.57349 billion square meters. Calculated by dividing total sales value by sales area, the national average selling price of commercial housing increased from approximately 5,791 yuan per square meter in 2012 to about 7,476 yuan per square meter in 2016, an increase of roughly 29 percent over four years.

In December 2016, prices of newly built commercial housing in Hefei were up 46.3 percent year-on-year, while those in Xiamen rose 41.5 percent year-on-year.

After housing prices began to rise, the home almost ceased to be merely an asset and became a kind of “national faith.”Buying a home came to be equated with settling down and establishing a family; a property deed was regarded as evidence of marital and family stability; a down payment was understood as the most important form of parental support for their children; school-district housing was treated as an entry ticket to educational competition; and owning multiple properties was imagined as a safeguard for retirement and intergenerational wealth transfer.

Risks and anxieties related to education, healthcare, household registration, employment, and retirement—issues that ideally should be addressed more evenly through public policy—were increasingly compressed into the value of a single home. As a result, housing prices were inevitably pushed upward, beyond the means of ordinary families.

Will 1998 happen again?

Today, people often say that China’s real-estate market may “repeat the path of 1998.” This formulation can easily lead to misunderstanding. “Repeating 1998” should not be understood as meaning that housing prices are about to enter another broadly rising, 20-year cycle. What may actually be repeated is another fundamental shift in the housing system and in people’s attitudes toward housing.

The prolonged rise after 1998 was built on a set of conditions that are difficult to reproduce today: rapid urbanization, continued migration into cities, relatively limited commercial housing supply, low household debt, substantial room for households to increase leverage, and continuous expansion of urban infrastructure and public services. The environment today is different.

First, urbanization is still continuing, but the demographic dividend and indiscriminate growth in new housing demand are weakening. At the end of 2025, China’s permanent-resident urbanization rate stood at 67.89 percent, with the urban population increasing by 10.3 million from the previous year. This shows that cities are still gaining residents, but population, industries, and employment opportunities are no longer distributed evenly.

A small number of major cities, metropolitan areas, and industrial clusters may continue to attract population, while many smaller cities, outlying new districts, and areas experiencing population outflows may find it difficult to obtain the same level of housing demand simply from overall urbanization.

Second, the position of the household sector has changed. In the late 1990s, urban households generally carried far less mortgage debt. Housing commercialization had only just begun, and households had relatively substantial room to increase leverage.

After more than two decades of rising housing prices and expanding mortgage lending, many households now carry long-term mortgage debt, while parents’ savings have already been drawn upon to help their children make down payments.

Even if interest rates fall and home-purchase restrictions are relaxed, households may therefore be more cautious about taking on additional debt to buy property.

Third, the structure of housing supply has changed. Around 1998, the supply of commercial housing on the market was limited, while large numbers of residents still lived in old public housing, workers’ family compounds, and poorly maintained employer-provided housing. Today, after decades of large-scale construction, cities have accumulated a vast stock of housing and a substantial second-hand housing market.

In the future, the housing market cannot continue to revolve simply around selling new homes. It will increasingly depend on how older properties are renovated, how second-hand homes circulate, how vacant housing is absorbed, and how aging residential communities are maintained.

Fourth, the policy objectives have changed. A major task of the 1998 housing reform was to expand supply through housing marketization, improve living conditions, and stimulate investment and domestic demand. Today, policymakers face a combination of challenges involving debt, property delivery, housing inventories, demographics, local-government finances, and financial stability.

At the 2016 Central Economic Work Conference, the authorities stated that “houses are for living in, not for speculation,” while also emphasizing the need to “curb real-estate bubbles while preventing major fluctuations.”This indicates that the policy focus had shifted from simply expanding the market toward containing risks, stabilizing expectations, and restructuring housing security.

Choosing a home: Is the market no longer cushioning household risks?

When the overall market is no longer broadly rising, “choosing a home” becomes a genuinely serious decision. In the past, people were more inclined to believe that “as long as you bought a home, you couldn’t go wrong.” Urban expansion, rising housing prices, and sustained growth in demand once concealed many problems with individual properties: a less desirable location, a longer commute, an inferior layout, an older building, or weaker property management might not matter as long as the overall market continued to rise—there would always be someone willing to buy.

Today, that broad market safety net is disappearing.

The future of a property depends on whether the city where it is located has sustained industrial and employment opportunities, whether the area can attract young families, whether transportation, education, healthcare, commercial services, and elderly-care facilities are reliable, whether the residential community is properly maintained, whether there is an oversupply of comparable properties, and whether the property can successfully enter the second-hand housing market in the future.

On the surface, “choosing a home” means choosing a floor plan, access to public transportation, property management, and a school district. In reality, it means choosing a combination of public resources, demographic trends, industrial foundations, and the quality of urban governance in a particular area.

Most importantly, buyers need to consider “liquidity”—whether a property can be sold within a reasonable period of time and at a price close to prevailing market levels.

For ordinary families, this concerns whether a home can be converted into usable resources in a timely manner when they need to move, retire, pay for medical care, cope with unemployment, divorce, their children’s education, or relocate to another city.

A decline in housing prices is not necessarily the most serious outcome. If prices fall, it may at least still be possible to find a buyer at a lower price. More concerning is when a property cannot be sold for a prolonged period, is difficult to rent out, generates insufficient rental income to cover its holding costs, and faces increasing competition from similar properties. It can ultimately become an asset that appears valuable on paper but is difficult to exit from in reality.

Looking back over the past 50 years, the most profound change in China’s housing system has been the continuous transfer of responsibility for housing.

During the era of welfare housing allocation, the state and work units assumed responsibility for housing, at the cost of shortages, waiting lists, and hierarchical allocation.

After 1998, the state retained ownership of land and control over land supply, while shifting the responsibilities and risks associated with buying homes, repaying mortgages, preserving property value, and maintaining family life for individuals.

During the period of rapid real-estate growth, local governments, developers, banks, and households formed an interdependent relationship based on expectations of rising prices. But ordinary families bore the debt that was longest in duration, most rigid in its repayment obligations, and hardest to exit.

Today, as real estate is no longer experiencing broad-based price increases, and as demographic trends, debt, existing housing stock, and regional disparities become increasingly apparent, housing risks are returning to households in more tangible forms: buying the wrong property, being unable to sell it, aging buildings, strained cash flow, and assets that are difficult to liquidate.