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'China's Silicon Valley' plans to house millions priced out by tech bros

Inkstone logo Inkstone 6/5/2019 Pearl Liu
a crane in the background © EPA-EFE/Jerome Favre

Dubbed "China's Silicon Valley," the southern city of Shenzhen is home to some of the country's biggest tech companies.

And just like San Francisco, a tech boom in Shenzhen has been a curse to those who can't keep up with rising property prices.

But in an attempt to calm public discontent over unaffordable housing and to keep attracting talent, the Chinese tech hub said it would build one million subsidized homes by 2035.

Shenzhen is seeking to adopt a housing model that, if successful, could be replicated in other major Chinese cities struggling to avert a housing crisis.

"Shenzhen would like to be a pioneer seeking a scheme more like Singapore, separating more affordable homes to average individuals seeking a place to live," said Li Yujia, a senior economist with the Center for Assessment and Development of Real Estate, Shenzhen, a research arm of the local government.

"Currently we are still using a Hong Kong model, where most homes are built and sold as commercial products in the private market and only a small portion of cheap rental flats are designed for the poorest."

The subsidized homes will be equally split into three parts, including public rental flats leasing for 30% of market rent, affordable homes at half of the market rate and other homes at 60% of the market rate.

The proposal put Shenzhen at the forefront of China's effort to rein in housing prices.

Since the country began its market reform in the late 1970s, housing prices have risen at least 10-fold in major cities including Beijing and Shanghai, becoming a major source of public discontent.

In 2016, President Xi Jinping said "housing is for living in, not for speculation," which was widely interpreted by the market as a signal the government planned to reel in freewheeling home prices.

In 1987, Shenzhen hosted the first land auction in China - ushering in an era where housing became a commodity for regular Chinese to purchase, a drastic change from the old planned economy model when homes were regarded as an employment benefit, handed out by state-controlled companies.

In the decades that followed, "Shenzhen's home price has soared too high as more are using homes as a tool for asset gains, and the current average price now is far beyond average affordability," said Fion He, chief analyst with property brokerage Midland Holdings China.

Shenzhen also hopes lower property prices will help it hold on to highly-prized tech talent.

"The pay is good here, but life is not," said Erica Yang, a 30-something native of central Hubei province who works for an online gaming company in Shenzhen.

"My husband and I have saved four years for the down payment, but if home prices continue to increase like the past couple of years, we have no hope of getting one and we may move to other cities like Guangzhou or just go back home."

The loss of a skilled labor pool would no doubt be bad news for companies headquartered in Shenzhen.

"This is a big problem for cities like Shenzhen. Losing skilled workers means losing hold of the engine of economic growth," said Joe Zhou, Capital Advisor Group executive director with realtor CBRE.

Experts believe that Shenzhen, with an economic output surpassing its southern neighbor Hong Kong, is wealthy enough to pioneer a new direction on social housing.

"Unlike most Chinese cities, Shenzhen's government does not rely on revenue from land sales. That is why the government has the guts to make a change," said Gan Li, a professor at Southwestern University of Finance and Economics in Chengdu.

This story originally appeared on Inkstone, a daily multimedia digest of China-focused news and features. Like what you see? Sign up for our newsletter, download our app, or follow us on Twitter and Facebook.

Copyright (c) 2019. South China Morning Post Publishers Ltd. All rights reserved.

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