By Zhang Junkuo & Zhang Yunhua

Research Report Vol.19 No.2, 2017

I. Three Outstanding Problems Confronting Rural Development under the Current Homestead System

1. Many homesteads and other plots of residential land in rural China unused or wasted Urbanization has been advancing rapidly since reform and opening up started more than 30 years ago. In particular, the proportion of rural residents in the total population dropped from 70.96% in 1995 to 43.9% in 2015 and rural population fell by 256 million to 603 million in 2015 after peaking at 859 million in 1995. In theory, the rising level of urbanization and declining rural population help to reduce land use for residential purpose because farmers live in more compact spaces in the cities than they do in rural areas. The reality, however, is that despite the sharp decrease in rural population land use for construction purpose has increased in rural areas along with the enormous growth in cities. According to the National Plan for New Urbanization (2014-2020), during the period 2000-2011, rural population decreased by 133 million while the area of land, mainly homesteads¹, occupied by rural settlements increased by 30.45 million mu.

It is not right that more land is occupied by rural settlements while rural population has declined sharply. It deserves much attention of the government and academia. In fact, one of the important causes of the problem is that many homesteads in rural China are left unused or wasted. According to the Ministry of Land and Resources (MLR) of China, the area of land left unused in rural settlements is around 30 million mu, equivalent to one-fourth of the area of land used by cities, and over 90 million mu of land is used inefficiently, equivalent to three-fourths of the area of land used by cities². According to the Institute of Geographic Sciences and Natural Resources Research, CAS, about 114 million mu of land in rural China is yet to be brought into efficient use³.

The problem that homesteads are left unused, used inefficiently and even wasted should be mainly attributed to the flaws of the current homestead system. Over the years, homestead-use rights can only be transferred within rural economic collectives and there is no compensation mechanism in place for these collectives to take back homesteads from farmers. This has led to two results. One is that whoever needs homesteads, such as farmers without affiliation to the collectives, urban residents, enterprises, and the government, cannot obtain homestead-use rights through a market mechanism and the value of homesteads is thus not brought into play. The other is that farmers are not motivated to transfer homestead-use rights since homesteads are undervalued. In other words, new rural households need more homesteads while farmers working in cities cannot transfer their homestead-use rights, which is bound to cause both increase in homesteads and the problem that many homesteads are left unused or wasted.

2. Farmers’ residential property rights unrecognized and a wide urban-rural gap in housing value caused by institutional differences and unequal rights

Housing is the most important property for both rural and urban residents. For farmers, housing includes the house they live in and the homestead-use right associated with it. In many cases, building a house costs the majority of a household’s savings. However, rural housing cannot be traded so there is no way to fulfill their value. There have been efforts to integrate the urban-rural use of land for construction purpose in Chongqing, Chengdu, Jiaxing and Guangxi. In their cases, each mu of land reclaimed from homestead users for construction purpose is traded at a price of at least RMB 100,000. Suppose the price is RMB100,000, it means that the 170 million mu of homesteads across the country is worth RMB 17 trillion. Currently, housing area per capita in rural China is about 37 square meters⁴. In 2015, China’s rural population was 603.46 million and the cost of rural housing is RMB 838.9 per square meter. It means that the cost of building houses alone in rural China stood at RMB 18.7 trillion. With both the value of homestead and the cost of housing construction considered, the potential value of rural housing across the country is above RMB 35 trillion, which means more than RMB 135,000 per household. If free trading is made possible, the value of rural housing will increase by several times.

In recent years, an increasing number of farmers have left their villages, doing business, seeking jobs or moving to live in cities. As a result, their houses and homesteads are left unused for a very long time. Due to policy limitation, farmers do not have a legal platform to trade their unused housing. In developed rural areas and urban suburbs, illegal trading of rural housing is nothing new but prices are much lower than the real worth of the traded housing because of the strict limitations on trading and absence of legal trading platform. In short, homestead-use rights are not allowed to be traded, farmers’ property rights including house ownership and homestead-use right are not recognized, and farmers do not have the right to turn their housing into a source of income so the unused rural housing is just sleeping assets for farmers.

Housing is tradable in cities but untradeable in rural areas. Such a difference has caused seriously unequal rights and a wide property-related income gap between rural and urban residents. The home of an urban resident may be valued at hundreds of thousands of, millions of or even tens of millions of yuan but a rural house is worthless. Such a phenomenon may be understandable in the context of a planned economy and the complete separation of rural and urban areas but it is a departure from what China pursues today. In the past, urban resident lived in government-funded housing and did not have residential property rights. Through the reform of urban housing system, urban residents were granted the residential property right. Farmers, however, have not been so lucky in this regard. It was clearly noted at the Third Plenary Session of the 18th CPC Central Committee that “farmers should be granted more property rights”. It is urgent for China to make it a reality as soon as possible through reform. ...

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