Inexhaustible, strong demand for housing, which is generated from the current low rents and the
work-unit-distribution housing system, has caused permanent housing shortages in China’s urban
sector. It is also one of the main sources of China’s cost-push inflation. The transition from public
to private saving, which is included in current housing reform, is the only way to solve the housing
problems facing the country. Calculation of the size of housing subsidies is the very foundation of
any housing reform program. Based on my estimates, the annual housing subsidy per woker
expanded 8.6 times during the period from 1978 to 1988, increasing at an anual rate of 24.1%.
Total housing subsidies expanded 12.4 times, rising at an annual rate of 28.6%. Relative to GNP,
the housing subsidies grew from 1.3% to 4.2% during the period. The rapid expansion of housing
subsidies has several significant policy implications for China’s economy. These include the need
for reappraising real worker income identifying the enlarged portion of revenue in kind, and recalculating
housing consumption.