Although budget housing has benefited low-income earners, it is not without problems. The government should consider instead a low-priced house rental programme to help the less well off.

Budget housing is sold for less than comparable commercial homes because the government charges developers less in administrative fees. The government also gives developers preferential terms for land transfer and taxation that ensure the prices of such houses are 10-20 per cent lower than commercial apartments.

There is a family income cap, among other restrictions, on applicants for such apartments.

Low-priced housing programmes, which have been launched in a number of major cities in recent years, have become extremely popular. In Beijing it is common for prospective buyers to queue for days before such housing units go on sale.

But because of the limited number of budget houses and disproportionately large number of potential buyers, serious problems have occurred in the distribution process.

In Beijing the family income cap is 60,000 yuan (US$7,400) per year. Applicants must submit proof, such as tax invoices or employer testimonial, to prove their eligibility. Information supplied by applicants is put on the Internet for social supervision. Those who submit false documents will be exposed in the public eye.

Nevertheless, many buyers circumvent the regulations by providing faked records. As a result, many budget houses are owned by the rich or cronies of government officials in charge of the programmes, giving rise to suspicions about the fairness of the system.

The distribution of affordable housing for low-income households could have widespread social repercussions. In Beijing, 10 million square metres of such housing, valued at 40 billion yuan (US$4.93 billion), is due to be built within five years.

This is in line with public support for such programmes. Despite the many loopholes, the public of course still want cheap houses. Some government officials also endorse the programmes, hoping to obtain more administrative power as a result of the policy.

It seems if anyone opposes the budget housing programme, he or she is criticized for not caring about the interests of the poor. Indeed, the programme is intended to help more people get on the property ladder. But it damages the market mechanism and creates opportunities for some government officials to collect rent on the side.

Economic theories state that rent-seeking can create serious problems and affect the efficiency of social resource distribution. It can trigger more losses in social welfare than the embezzlement of public funds.

The launch of the affordable housing programme poses difficulties in terms of the government's role in economic development.

The government should safeguard the stability of society and provide a sound macroeconomic environment. It should create an arena for fair competition through protecting property rights. It should also assist in the development of elementary education and scientific research and provide public services, such as infrastructure.

In other words, the role of the government is that of economic referee, not direct market player.

In the property sector the government should promote fair competition and prevent the market from being monopolized. It should help the sector stop bubbles from inflating and prevent prices from soaring as a result of speculation.

The government could consider introducing a Tobin tax, a tiny amount such as 0.1-0.25 per cent uniformly levied on property transactions to deter speculation. While the rate would be too low to have a significant impact on long-term investment, such a tax would cut into the yields of speculators, who often seek short-term profits.

The government, admittedly, is responsible for helping the poor find somewhere to live. But it should not mix social welfare arrangements with the market mechanism.

The government should directly give those that cannot afford a house financial subsidies.

These residents would not have the property right to the houses, but they do not have to pay rent, which should be covered by public funds.

Some may doubt the government is financially capable of implementing such a project. But as part of the current budget housing programme, the government has given developers huge amounts of de facto subsidies, which indicates that it is in effect capable of providing the low-priced house rental service.

It is hard for the government to set a standard definition for low and medium-income earners. As a result many affordable houses are owned by people who are not really in need. This means public subsidies have ended up in the wrong pockets.

The government should respect the market's role in deciding what sort of houses people will buy. Its real duty lies in the provision of direct housing subsidies for the needy.