Four Years Ago, a Policy to Push Down Housing Prices. Today, Two Classes in One Compound.

In a market that runs on market rules, how many mistakes can one flawed policy that ignores the market set off?

Neither Liu Lin nor Zhang Bo expected the separation gate to come down on the morning of January 12.

That was handover day at Longfor Tianpu, the compound in Dongba, out past Beijing's East Fifth Ring Road in Chaoyang District, where Liu Lin had bought a home three years earlier. She came that morning to inspect the unit with her husband and her parents-in-law. Around 8:30 a.m., the four of them walked into the building, a "Welcome Home" sign hanging over the entrance.

Two hundred meters away, in the compound's garden, Zhang Bo's wife and children were at a carnival the residents had organized. They wandered among the market stalls set up around a white tent, enjoying themselves.

At 9 a.m., a fight broke out on either side of a black iron gate at the southwest corner of the compound. Liu Lin and her family came downstairs to the gate, where dozens of security guards stood holding the two crowds apart. Over the next hour, the neighbors who had come to take handover with Liu Lin rushed the gate together and pulled it down with ropes and tools. On the other side, luckily, Zhang Bo's wife and children were not hurt.

Liu Lin and Zhang Bo, separated by that gate, own the self-use housing and the commercial housing, respectively, in the compound called Tianpu Garden. Had they not both happened to buy at Longfor Tianpu, there would be little to tell them apart: both went to university, both hold similar jobs, both like much the same things. Now they stand for two different "classes."

1.

Dongba is far out. The township runs from the Sancha River in the east to Beigangzi in the west, and from Beimafang in the north to Xinjie Village in the south. The nearest subway stop is Sanyuanqiao on Line 10, ten kilometers away — 40 minutes by car. The route doubles back on itself, and there are few people walking it. Inside Dongba township, construction and demolition sites of every height line the narrow road; to hold down the dust, the earth and rubble are draped in green netting, leaving everything a hazy gray. The only bright things are the roadside auto-repair shops and truckers' diners, their signs bold yellow characters on scarlet.

Word that Dongba was about to rise had been going around for almost six years. In 2012, the Chaoyang District government announced that the Fourth Embassy District would be built in Dongba. Under the plan, the district government would "build the city's largest high-end business community" there, covering an estimated 6.2 square kilometers, with the residential areas designed as a "low-density, ecological community." In 2013, the route of Beijing's Pinggu subway line was settled, and it too was planned to pass through Dongba township. Experts predicted at the time that "five years from now, Dongba will be transformed beyond recognition."

But the township government's demolition work went badly. As far back as 2004, when a green belt in an area under Dongba township was cleared, villagers clashed with the government over resettlement housing and compensation. Demolition crawled on this way for nearly ten years. In 2017, after the environmental impact report for Beijing subway Line 3 confirmed that all of northern Dongba would be torn down, villagers protested to the township government again that September.

So by 2018 the whole of Dongba township was still quiet, still bleak.

The developers arrived before the demolition was finished. As soon as the Fourth Embassy District was announced in 2012, Evergrande, Poly and others began bidding for land there. In November 2013, after 22 rounds of bidding, Evergrande took the southern Dongba plot at a floor price of more than 50,000 yuan per square meter. In early 2015, a consortium of Shoukai (Beijing Capital Development) and Longfor spent 1.125 billion yuan on three Dongba plots numbered 1106-692, 634 and 693.

In those years, besides winning multiple rounds of bidding, both Evergrande and the Shoukai-Longfor consortium accepted an extra policy condition — the requirement to "build in self-use housing." A developer taking the land had to build part of the plot as self-use commercial housing.

On October 23, 2013, Beijing issued its Opinion on Accelerating the Construction of Low- and Medium-Priced Self-Use and Upgrade-Oriented Commercial Housing. The municipal party committee decided that by the end of that year it would supply land for no fewer than 20,000 self-use housing units, and that 70,000 self-use commercial housing units would come to market within two years.

"Self-use commercial housing" means housing priced about 30% below the commercial housing around it, sold to households anywhere in the city who meet the purchase restrictions and who will live in it themselves. It cannot be resold for five years, and after five years, 30% of the gain on resale goes to the treasury. It was seen as one more price-control device from Beijing, after the housing-reform units, export-only commercial housing, economically affordable housing, low-rent housing and price-and-purchase-capped housing the city had rolled out since 2006.

With this policy-driven way of selling land now settled custom, the Shoukai-Longfor consortium, having won the plot it wanted, published its project plan in January 2015. In the bird's-eye rendering released with it, the southwest corner was built up as 12-story self-use and affordable housing, while the seven buildings in the middle were 11-story mid-rises of large, high-end units. That July, Longfor announced the prices for the high-end units; with the "school-district housing" label attached, the industry expected the average to reach 80,000 yuan per square meter.

A month later, the self-use housing project, named Shoukai Longfor · Xuefuyuan, opened for online applications: 237 units of 85 to 90 square meters, at an average price of 22,000 yuan per square meter.

2.

Liu Lin's family came to Dongba at exactly this point. She is a "new Beijinger" who stayed in the city after graduating, a Beijing-registered resident who owned "no home, or only one" — precisely the eligibility test for self-use commercial housing. That August, they learned the lottery results on the website of the Beijing Municipal Commission of Housing and Urban-Rural Development: they had won the right to buy at Shoukai Longfor · Xuefuyuan in Dongba. Hit by a one-in-a-hundred chance, they rushed, still elated, to pick a unit and buy it. In November 2015 the family paid the down payment and began looking forward to their first home in Beijing.

Earlier that year, Zhang Bo's family had also become Longfor owners. What they bought, though, was in one of the seven high-end buildings called Longfor Tianpu. His reason for buying in Dongba was simple: the Longfor development there also included an international kindergarten and a nine-year school covering primary and junior middle grades, and Zhang Bo had two children about to start school.

In 2016, Zhang Bo's "school-district housing" plan nearly collapsed. The school next to the Longfor compound had already been designated the Dongba campus of Beijing Middle School, but to curb the distorted price surge in so-called school-district housing, the Ministry of Education issued a notice that February, Circular on Enrollment Work for Urban Compulsory Education in 2016, which in effect abolished the concept. Under electronic assignment, Zhang Bo's children might have ended up at a school several kilometers away. It turned out to be a false alarm: the Chaoyang Education Commission's final answer was, "It isn't school-district housing, but you can choose Beijing Middle School first on the basis of proximity."

The buildings went up day by day. On the schedule, Zhang Bo would get his unit in June 2017, and Liu Lin's family theirs about half a year later. By 2018 both families would be living in the Longfor compound, neighbors a few buildings apart; their children might one day be classmates, meeting at the compound kindergarten or at Beijing Middle School.

Within the half year after March 2017, a two-meter black separation gate closed off all of it. That 30% price gap had finally caused real trouble.

3.

In June 2017, Zhang Bo and more than 100 other households finished the handover and moved into Longfor Tianpu. The formaldehyde had not fully cleared and there was less green space than the early marketing promised, but once inside they were pleased to see, on the passage linking the self-use housing to the commercial housing on the compound's southwest side, a black iron separation gate — exactly as it had appeared on the scale model before they bought. Back in 2015, Longfor's sales staff had promised them that "Tianpu and Xuefuyuan are separate compounds, with a clear separation from the self-use housing."

That same gate enraged Liu Lin and her neighbor Mr. Chen. Like Liu Lin, Mr. Chen had won the lottery at the end of 2015 and taken a unit in "Xuefuyuan." During the two years of construction he had heard of plenty of cases where developers used greenery and shrubs to wall commercial housing off from self-use housing, but on the day the commercial-housing owners took handover, the photograph of this gate that a neighbor sent back from inside the compound still shocked him. "I never thought they'd go this far."

When they bought in 2015, neither Liu Lin nor Mr. Chen had heard of any such separation. "Xuefuyuan" had only ever been a provisional name for the self-use housing community in their contracts; the compound name written throughout their contracts with Longfor was "Tianpu Jiayuan" — the same compound as Zhang Bo's. On the site plan they obtained from the Chaoyang District housing commission there was no barrier of any kind between "Xuefuyuan" and Longfor Tianpu — nothing like the model Zhang Bo had seen.

For Liu Lin and Mr. Chen, that gate meant a great deal. Apart from the kindergarten and the school, the entire Longfor plot in Dongba had been built as one compound, with three gates. The main gate faces north, about 20 meters wide, paved in yellow limestone, with a guard booth. The side gate on the northeast leads straight to the underground garage for cars, also staffed by guards. Longfor told Zhang Bo this was a compound with "pedestrian and vehicle traffic separated." The last gate opens on the northwest side, about 7 meters wide, with a sidewalk beside the two-way roadway wide enough for one person at a time. Once the separation gate was up, that was the only way Liu Lin and Mr. Chen could come and go.

Unlike the solid asphalt outside the main gate, the northwest gate faces a construction site, and outside it is a dirt road where many manhole covers still sit crooked, making it hard for cars to get in. To Mr. Chen this was discrimination too blatant to miss. In group chats some owners called it the "No Chinese or Dogs Allowed" iron gate.

Fire safety mattered more. In March 2017, Longfor Tianpu passed its fire inspection. Under the applicable standards a compound of this size should have two gates, one of them serving as an emergency fire lane. With the separation gate up, the self-use owners of "Xuefuyuan" would have a single gate in and out, which breaks the fire code outright. And once the separation stood, the green-space ratio and floor-area ratio written into the purchase contract became words on paper: under the plot's planning and design scheme approved by the Municipal Planning Commission, the compound's floor-area ratio was to be 2.2 and its green-space ratio 30%.

Talks with Longfor's representatives went nowhere, and the owners decided on the spot to petition. The 237 self-use households submitted a statement of the facts to the Chaoyang District housing commission and planning commission, arguing that Longfor had put up a separation inside the compound in breach of the rules. They cited the Circular on Further Strengthening Property Management Services for Affordable Housing and Other Housing, issued by the housing commission in August 2015, which says plainly: "In newly built commercial housing projects with affordable housing built in, commercial housing and affordable housing shall be placed under unified property management; the construction unit may not divide affordable housing from commercial housing within the same property management area by adding fences, greenery or similar means. If the construction unit wishes to manage the property by separate zones, it shall, in line with the city's planning and design standards, build public buildings and shared facilities zone by zone and equip each accordingly."

In July, the housing commission and the Beijing Municipal Commission of Planning and Land Resources released their findings one after the other. The Chaoyang district planning and land commission's reply, and the site planning and design drawings it supplied, showed that the separation was not part of the approved plan; the district planning commission recommended that "the district housing authority should press for rectification as required."

As plot after plot of built-in self-use housing sold in 2015 reached handover, petitions and negotiations over compound separations kept breaking out, and in August the Beijing municipal government could no longer sit still. That month the Beijing Municipal Housing Security Office called a meeting to organize work on separations in compounds where affordable housing is built into commercial housing. The separation problem, the meeting said, had become a matter under key municipal supervision, and compounds with separations were to remove them by August 31; on September 1, departments would inspect jointly and tear down what remained. Two Longfor compounds in Beijing were named in the end.

But on August 31 the separation was still standing. The answer Zhang Bo and his neighbors got was, "Tianpu is a special case; it will be looked at again." To a disappointed Liu Lin and her neighbors, Longfor said this was a construction barrier gate: the self-use project was not finished, so the barrier had to stay to keep owners safe.

4.

It dragged on into 2018. Three days before the January 12 handover, Liu Lin and Mr. Chen found the gate still there. On January 9, Longfor asked Liu Lin and several other owner representatives to meet. In that meeting Longfor changed its story again: it had worked things out with the commercial-housing owners, so that at handover on the 12th the separation gate would be "open." The owners' patience ran out, and they decided to keep complaining to the housing commission.

The 12th, handover day. Across the different interviews and accounts, the details of that demolition have blurred. The one certainty is that at about 9:30 a.m. nearly a hundred self-use owners rushed forward together and used tools to tear down the big iron gate that had blocked the middle of the compound for almost six months.

By the accounts given, the two sides cursed each other across the gate that day and threw stones. To the commercial-housing owners, the self-use owners "came prepared, with bolt cutters and hammers," an unreasoning mob of "thugs." To the self-use owners, the commercial-housing owners pushed women and children to the front to play for sympathy while quietly "detaining and surrounding" self-use owners who came through the gate and grabbing their belongings. The only point both sides agree on is the more than 60 property guards on the scene, who held the crowds apart, standing on either side of the gate, faces blank.

That night, feeling that the "thugs" had threatened their families' safety, Zhang Bo and his neighbors raised money on the spot and rebuilt the gate overnight, adding two steel bars about 4 meters long, chained across each other in an X — one giant mark for "wrong."

5.

Ten days after the separation came down, six or seven guards still watch the barrier inside the compound every day. No approaching, no photographs.

Video from the day of the demolition is already online, and owners on both sides have published their own accounts to restore the "truth" of what happened. Their usernames on Weibo say something in themselves: the commercial-housing owners post as "@Longfor Tianpu Owners," the self-use owners as "@Tianpu Self-Use Commercial Housing Owners." Since the 12th, the quarrel between the two "Tianpu"s has been declared beyond all reconciliation.

The self-use owners of "Xuefuyuan" decided to stay with the petition route, demanding again that the housing commission and the planning commission enforce the policy and remove the separation entirely as the plan requires, while also preparing to sue Longfor. Four-fifths of the 237 households are now refusing handover; some owners whose children urgently need the handover to register their residence have decided to hold out one day at a time.

The commercial-housing owners, meanwhile, are still shaken by the "violence" of the 12th. Besides rebuilding the iron gate, they are pressing the local police station for a final ruling on the forced demolition. Zhang Bo said: "After a farce like that, the basis for the sort of rational conversation we thought was possible is gone." At the end of Violence on an Auspicious Day, an article reconstructing the events, one commercial-housing owner wrote: "If at the start some of us still thought of inviting the neighbors over to sit down, we are now in full agreement: do everything possible to preserve the independence of our own compound and the safety of our own living environment. When values differ this much, you cannot be neighbors."

6.

This is not the first wall to be pushed over in a Beijing compound. On September 2, 2017, several hundred owners in the west section of the Xihu compound in Haidian District tore down the wall the developer had built between the east and west sections. But in that fight over a blue sheet-metal wall, the two sides were the developer and the self-use owners; the east section had only just received its pre-sale permit, so commercial-housing owners never entered the story. It happened to be the day after the rectification deadline the housing commission had set in its August notice, and, facing a separation wall the developer had put back up, the owners picked up hammers.

From 2016 to now, the 70,000 self-use commercial housing units built in 2013 and 2014 have reached their handover dates one after another, and the trouble the separation walls cause has surfaced with them — the legacy of that policy.

Mr. Chen at least sees it that way. The whole separation problem, he thinks, is a "strange product of a particular moment." Developers made false promises in purchase contracts, got their land through the policy, then refused to swallow the losses on the self-use projects. By now Zhang Bo also thinks the developer was simply "lying to both sides."

A person connected with Longfor told QDaily that this will have to be worked out slowly, for the time being — and you would not be wrong to read that as "there is nothing to be done."

Putting up separations in comparable Beijing compounds, he said, had been standard practice from the start, an "established convention," and not a headache unique to Longfor. He called the self-use owners' demands "fair and lawful," and the commercial-housing owners' actions "fair and understandable." Asked about a separation that appears on the scale model and vanishes from the site plans, Longfor was just as nimble: "We think a separation gate is different from a separation wall. It isn't a physical structure, so there was no need to draw it on the site plan; and of course, since it isn't a structure, it can't be ruled an 'illegal structure' either."

Facing the housing commission's demands and its supervision, Longfor's chosen course at the time was to talk to the commercial-housing owners. The gate briefly opened on handover day, he said, was what those efforts to win the other side's understanding had bought. "Going forward we still hope to invite experts and lawyers to sit down with owners from both sides and work out a solution properly. The second floor of our property office is an open area, and anyone can come and talk to us at any time. ... We will not shirk responsibility — we are the party chiefly responsible. We will work to find a solution, and discuss compensation and other matters with owners on both sides..."

Of course, by the latest news, the China Consumers Association and the China Real Estate Association have begun paying attention — and if some "force majeure" steps in to decide the matter, that may in fact lift a large headache off the developer. "Force majeure" can be a rather lovely thing.

7.

Now we can look back at how this headache, which first surfaced in mid-2017, was set up four years earlier.

From 2010 to 2011, Beijing's relentlessly rising housing prices made everyone angry. Raise transaction costs, raise the threshold for transactions, restrict purchases, restrict who may purchase, restrict sales, restrict the proceeds of sales (raise taxes), cap prices — on the supply side and the demand side alike, from the State Council down to the Beijing city government, came a run of measures no outsider could ever quite explain: the "National Eight Rules," the "Beijing Twelve Rules," then another "National Eight Rules." Beijing housing prices fell for seven months. By February 2012 they were rising again, and they rose for 16 months, with new commercial housing up 20.6% year on year.

Supply and demand had not changed. The wish for better housing had not changed. The absence of any good investment other than property had not changed either — with "Beijing, Shanghai, Guangzhou, Shenzhen" perhaps added as a qualifier; and of course the larger pattern by which those four cities hoard resources and draw talent had not changed. A rise was all but certain.

Then came the trump card.

If the point was to control prices, developers had to be made to keep prices low. Developers, naturally, had no wish to do that — so the basic auction rule, highest bidder wins, simply had to be amended.

Developers who got land had to promise to build some cheap housing too.

On October 23, 2013, Beijing issued the Opinion on Accelerating the Construction of Low- and Medium-Priced Self-Use and Upgrade-Oriented Commercial Housing (the "Opinion"), known as the "Beijing Seven Points."

It had one rule at its core: from then on Beijing would supply land by methods such as "cap the housing price, bid on the land price," and any developer who wanted land would also have to build self-use commercial housing into the project — units under 90 square meters, sold at an average price about 30% below commercial housing of the same location and quality.

On November 11, the planning and design schemes for Beijing's first batch of self-use commercial housing projects went on show at the Beijing Planning Exhibition Hall. The first seven projects, spread across four districts and counties, put 16,020 self-use units on the market.

As conceived, this housing was meant for the low-to-middle "sandwich layer" — people who cannot afford ordinary commercial housing but do not qualify to buy affordable housing. Priority therefore went to households already queuing for economically affordable housing and price-capped commercial housing. To keep its "welfare character," the Opinion barred resale for five years and required the 30% price gap to be paid back on sale.

Ren Zhiqiang, still outspoken then, raised his objection at once: "Using this method of land transfer to make developers build self-use commercial housing is, in essence, the government pushing its own job onto the market. ... To break the housing deadlock, it's the same old line — 'Welfare housing to the government, market housing to the market.'" As early as 2005 he had counted seventeen or eighteen different categories of ownership and classification for housing in the Beijing market.

By this point, though, regulation had long since stopped being about a more orderly or more rational market. It had been reduced to a single question: isn't this just about bringing prices down?

Wang Rongwu, deputy director of the Beijing Municipal Commission of Housing and Urban-Rural Development, told 21st Century Business Herald: "Whatever the means, Beijing must meet its target within the year — new commercial housing prices basically flat against last year's average of 20,700 yuan per square meter."

The target was met the following March, after 70,000 "self-use commercial housing" units had been absorbed across 17 newly developed projects, under scrutiny both optimistic and pessimistic.

The optimists stopped being optimistic a little over half a year later. Prices fell for six months in all; from September 2014 the decline stopped. Thirteen months after that, prices were back where they had been before the "Beijing Seven Points."

As for the pessimists, a good many of their predictions came true.

In November 2013, just after the "Beijing Seven Points" was issued, Tao Hongbing, chairman of Gaoce Real Estate, said it could not fundamentally change the imbalance between housing supply and demand in Beijing, and might well worsen the imbalance for upgrade-oriented housing. "There is only so much land in Beijing. If more land goes to self-use commercial housing, the supply for ordinary commercial housing gets tighter still; and in recent years the average transaction area per household in Beijing has been growing year by year, which shows that demand for upgrade-oriented housing keeps rising as a share. That will produce a new structural imbalance and a new rise in prices."

The research department of Centaline Property predicted at the time that even though "self-use commercial housing" sold at 30% below the market price, it would still return more than an ordinary commercial home bought at market price, after handing over 30% of the appreciation on resale five years later. With two completely different operating systems for housing of the same quality, it seemed inevitable that "self-use commercial housing," like the economically affordable housing before it, would turn corrupt in the administering.

National Business Daily quoted a Beijing property executive as saying that with land reserved for pure commercial housing chased by far more buyers than there was land, land prices were bound to be driven up; the structure of Beijing's housing market would grow still less rational — low- and mid-tier housing drifting out of the commercial market, and commercial housing drifting toward luxury.

In August 2014, Liu Yuan, research director at Centaline Group, became the one to say the emperor had no clothes. In an article on the Chinese-language site of the Financial Times, he wrote that housing-security policy must have a clear purpose and clearly defined beneficiaries, and cannot exist merely to push prices down.

At the end of 2013, Southern Weekly interviewed "an industry insider who did not wish to be named" on the subject. He said that because the document spoke of "encouraging enterprises, public institutions and related organizations to use their own land to develop and build self-use commercial housing," the "Beijing Seven Points" had in effect opened a respectable channel for ministries, central state-owned enterprises and the like to build welfare housing. "Two years from now you'll find that this self-use commercial housing, which looks so lovely, may well turn out to be an ending that never began."

No one, of course, expected that its by-products would include a separation wall — a large footnote to the hardening of class lines and the splitting of communities, social strains nobody had yet noticed in 2013.

8.

January 21, 2018, just after the Greater Cold. On the self-use side of Longfor Tianpu, a crew of workers was planting trees. Dust flew; the drill was loud.

It is not the season for planting trees, but nobody had time to care. One of Liu Lin's neighbors, heading back to the compound, was stopped outside the gate by a guard, who said that to get in he would have to prove he was an owner with his purchase contract.

On the second floor of the property office by the compound's northeast gate, a workman was trying to get staff to issue him an "exit slip." With no one suitable to vouch for him and the owner's phone going unanswered, he stood at the service counter for half an hour, anxious to get his toolbox back.

On the asphalt road outside Longfor Tianpu's main gate, renovation crews kept arriving to work inside. Each time a van went through, guards opened the rear doors and looked it over carefully, in case anyone suspect slipped in. It was bitterly cold; two guards by the roadside stamped their feet and lit cigarettes.

In front of the iron gate on the southwest side of the compound, six guards were still standing. They cannot stamp their feet. Like the gate, they simply stand there in silence.

(At the interviewees' request, Liu Lin, Zhang Bo and Mr. Chen are all pseudonyms.)

The cover image was provided by an interviewee; the long lead image comes from @Jinglou Caicai; unless otherwise noted, the images in the text were taken by the author.