With the fast-paced growth of urban population and economy, the housing market in Shanghai has been developing rapidly since the1990s. By implementation of 8th-12th Five-Year Plans, which Shanghai municipal government formulates every five years as a guidance of development, 460.7mn square meters of housing floor area was completed between 1990 and 2014. The city’s built-up area increased from 248 in1990 to 999 square kilometers in 2014 meaning that the urbanized area of Shanghai has quadrupled in size within 25 years.

As a manifestation of rapid urbanization and the promotion of home ownership, the house prices have continued to skyrocket. Shanghai Statistic Bureau reports the average house price for overall Shanghai was RMB 21,501 per square meter in 2015, while in inner city, i.e. area inside the viaduct of inner ring road, the price was an average of RMB 72,066per square meter; almost twenty times more expensive than it was in2000. Shanghai has been listed as one of the world’s most expensive cities to buy a home.

Due to soaring housing prices, low and moderate income households not only missed an opportunity for asset accumulation, but also faced an increasingly unaffordable housing market. This situation resulted in tremendous social discontent. The other aspect is that the commercialization of housing destroyed the original homogeneous neighborhood pattern, which instead aggravates the social stratification as well as social exclusion.

High Home-ownership Rate

As China City Livability Report indicates, the home-ownership rate of Shanghai was 67.9% in 2012, which is at the lower end compared to other major Chinese cities. However it is still much higher than many developed foreign cities or countries. (Fig.1) High home-ownership rate is achieved by a complex combination of growing wealth, cultural recognition of owning property, housing appreciation, relative low cost of holding, and investment. Owning and investing motivations foster a strong and lasting willingness to buy in the housing market.

Home-ownership is both a consumption decision and an investment consideration. It has been an important factor driving the boom in property development, financial services and other sectors in an increasingly market-oriented economy. The positive social effect is that sitting owners show greater commitment and they care more about their living environment. While the negative effect is argued that greater immobility of home owners might exacerbate structural problems in the labor market and hamper the matching process.

Mismatch of Supply and Demand

For the last two decades housing construction has continued to grow and be on a large scale. It provides 2/3 of the current housing stock. In other words, the majority of neighborhoods in Shanghai are new and young. Each year approximately 19.9mn square meters of new housing floor area is put on the market. Only in the last five years has there been a quarter decrease in new housing due to the reduction of land supply and the declining inflow of new migrants. By 2015, housing space per urban resident had reached 35.5 square meters: 2.7 times that of 1990. Using 35.5 as a housing quota per person, it’ll be derived that10mn square meters floor area of housing can accommodate 280,000residents. Therefore, figure 2 illustrates the change of housing completed and population growth over 25 years. Put aside affordability issues, the demand and supply are well matched.

However, there are severe affordability issues as to home buyers.Considering disposable income of an average family in 2015 was around RMB 143,000, and the market price for a two-bedroom unit in average location was RMB 32.2mn therefore the price-to-income ratio is around 22.5 times, which far exceeds the international convention (4-6times).It makes it very difficult for a first-home buyer family without much accumulated wealth, particularly those new immigrants who move to Shanghai empty handed. They are pressing demand but less effective. There are problems of location as well. Large scale housing projects are normally set into new developed suburban or new town areas, which are far from jobs, and have less access to services and transportation. Availability of housing in fair locations is far lower than demand. The demand and supply are misplaced. Both a problem of affordability and location resulted in a large amount of housing vacancies in newly developed area.

Improvement and Investment Zeal

Since 2010, the “House Purchase Restriction of Shanghai” (HPR) was outlined in response to national call for refraining from real estate speculation, cooling down the market and insuring social housing. A series of supporting policies have been introduced. The most recent one, “Action Guidelines on Optimizing Land-use Structure and Housing Supply,” was released in February and focuses on promotion of small and medium sized housing units, encouraging lease tenure etc. These policies however harmed the improvement demand due to the strict entry standards for purchasing. Meanwhile, it triggered the hunger for capital and investment;both demands are hold to burst with great zeal. Once there are favorable financial inducements such as easing credit, these demands will release dramatically and uphold the market price. The top three Chinese cities with the fastest rise of housing price in 2015 were Shenzhen (52.7%),Shanghai (21.4%), and Beijing (11.3%) respectively.

Social Exclusion – Outcome of the Market

Before the 1990s, most housing in Shanghai was provided for almost free by work units. It allowed neighborhoods to have a good mix of people,whether an executive or an ordinary worker. People lived in assigned public houses that were close to at least one family member’s work locality. The income level and housing standard among communities did not have many differences. The overall city residential pattern was presented in a homogeneous and compact status. After decades of housing reform,the public houses were sold to sitting tenants at a preferential price. The housing supplier has shifted mainly from work units to the market – the developers specifically. Location now is the main determinant of housing price, and how much you earn decides where you live. Neighborhoods are divided by income groups through the commercialized housing market.From Prof. Madanipour’s view (author of Social Exclusion and Space),a land and property market, which sees space as a commodity tends to create socio-spatial segregation through differential access to this commodity. Shanghai is following this path.

Suburbanizing the Less Rich

Inner city regeneration and new town development have long been regarded as two major engines that stimulate urban development of Shanghai. By undertaking a series of significant development projects, including: One City, Nine Towns (2000-2005), Shanghai Expo (2010), Mass-transit System,and Shanghai Disneyland (2016) etc., the city is rapidly renewing and expanding. Old neighborhoods are demolished and replaced by profitable commercial developments. Original residents are usually relocated far away from the inner city; allocated housing in the newly developing outskirts or new towns where services and transportation are not yet fully developed.Wealthy families can afford to stay in the urban center, while the less rich have to be bought out. The positive aspect is that the living environment and productivity in central areas have largely been improved; the transfer of spatial structure from mono-center to poly-center was gradually achieved.While the negative impact is that spatial stratification occurred, social exclusion and housing inequality aggravated during restructure process under the power of market.

Fragmenting Urban Fabric

The current commercial housing development pattern features in its large-scale and fenced community. The increasingly heterogeneous livings paces, such as luxurious villas, middle-class neighborhoods or low income dwellers, are mainly differentiated by wealth, consumption power,property values, community services and the social composition of the residents at the expense of equality, public space and the rights of the poor. This unveils the increasingly fragmented and differentiated urban fabric. Super blocks and huge tracts of land cut off public spaces; sacrifice the convenience of accessibility and of utmost importance, slow social mobility and intensify social exclusion. Fortunately the government is now aware of the damages and willing to take action. In February Ministry of Housing and Urban-Rural Development launched a new policy of opening up gated communities, in order to share public space and allow access.The policy, also aimed at increasing traffic efficiency, provides the city with opportunities to break through the barrier of spatial exclusion.

Conclusion

There is no quick fix for the high prices, the mismatch and the social exclusion. The urgent need for affordable housing with good accessibility,especially for migrants without local hukou has to be addressed with priority. Some contributors have advocated alternatives, such as promoting rental housing development, adopting inclusive housing policies, keeping housing construction consistent with employment growth and other financial inducements etc. Local government has taken a more active role in market regulation and as a mediator of competing social interests in urban renewal. These changes also reflect the emergence of a national agenda calling for more socio-economically balanced development.

Further Information
Ms. Zhang Zongyi is a lecturer in the Department of Construction Management and Real Estate at Tongji University. She can be contact via: zhangzongyi@tongji.edu.cn.She would like to give her thanks to Ms. Wang Jue, Ms. Cui Chenxi, and Ms. Cheng Yi for their help with data and editing.