The Chinese-language press has been reporting over the past couple of weeks that the buying and selling of housing has come to a standstill in the nation's large cities.

This comes soon after the release of the central government's policy package on the urban property market.

No doubt these policies, especially the ones which stipulate that 70 per cent of new housing must have a floor space of less than 90 square metres and that the selling of any units within five years of their purchase will be subject to a business tax, are having an impact by temporarily dampening enthusiasm for real estate investment.

But this is only the first step. Judging from the significant role played by this industry, especially in cities such as Beijing and Shanghai, much more work needs to be done.

The role of the urban housing market is twofold first and foremost to provide somewhere to live, but, more importantly, to provide a sense of security.

It is that sense of security that is crucial to keep a growing and relatively satisfied new middle class in this country, primarily the young and middle-aged salary earners who staff the professional services needed by a modern and internationally competitive economy.

In the meantime, the established middle class, meaning relatively older employees from State-sector companies and institutions, also deserve their fare share. Many of them were allocated housing during the era of the planned economy. But those houses may be old or in rundown neighbourhoods, and they may be expecting to replace them for better ones.

To assure those people of decent living conditions, or to be satisfied with their housing while enjoying their work, is a long-term mission of the government. While there is no point in bringing housing distribution under the direct control of government agencies as in the past, which had many loopholes anyway, long-term policies are required to protect at least part of the market from the wild impulses of the stock market.

Indeed, separating the housing market for middle-class owners and that for investors, whenever and wherever that is feasible, is what the municipal officials should start considering in Beijing and Shanghai.

Young professionals and service employees in those cities should be provided with the housing with the best access to the public transit system and other publicly funded infrastructure. And in the long run, this will bring greater benefits to the city's GDP than merely building and selling houses, as all business executives will agree.

As for the retired workers, they deserve greater payments when the land they occupy is acquired by the government for re-development. And this should not be difficult, judging from the usual mark-ups for the urban land. Private developers should also be asked to contribute to a welfare fund to provide additional money for the relocation of retired workers to new neighbourhoods.

Of course, part of the market will remain open to investors, if they prefer to take risks in the housing market rather than the stock market. But they should only be allowed to speculate on designated buildings and areas that will not affect the general lifestyle of the city, such as high-class office buildings and luxury residential units on the outskirts.

With regard to wealthy immigrants to large cities, it would only be fair for them to pay for not just housing (if they have above-average demand) but also the facilities they are going to enjoy. If they are unhappy with certain things, those special homeowners can easily raise money among themselves to improve them.

The key, however, is always to help the young professionals, service workers, and whoever are the Chinese cities' future builders stay where they are and be happy, because they help China remain stable and productive.

Email: younuo@chinadaily.com.cn

(China Daily 06/12/2006 page4)