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By Michael Cole, Mingtiandi, 

Since China gradually began pumping the brakes on an overheated housing market two years ago it has been waiting for the economy to move away from a dependence on land and housing sales. The desired transformation finally started to hit home in April and the result has been what a Bloomberg News survey predicts will be the country’s slowest economic growth in 13 years as manufacturing output, housing prices, electricity usage and a host of other measures all fell last month.

Now, in order to stave off a hard landing, the government is looking for ways to stimulate the economy while keeping inflation under control and without unleashing the rabid residential real estate market.

The authorities have already started pushing monetary levers such as lowering the bank reserve ratio, however, one measure that ticks all the policy is accelerating public housing programs.

Although it was late to embrace affordable housing, since realising a few years back that when a majority of citizens have no hope of ever being able to buy their own home, that there might be a few more “mass incidents” China’s government has been promoting public housing initiatives.  According to official estimates, the China completed three million affordable housing units during 2011.

Now as the economic data turns gloomier, the government wants to accomplish the following goals:

• Keep an economy geared to produce new houses from crashing
• Promote consolidation in what it sees as a “disorganised” real estate development market
• Keep real estate prices low so the masses don’t do any more “incidenting”

Nothing ticks all those boxes like funding subsidised housing, and the news headlines following April’s disappointing data confirm government moves in this direction.

For example, the Ministry of Finance and the Ministry of Housing and Urban-Rural Development announced last week that the government will provide CNY66 billion ($10.4 billion) in subsidies to support the targeted construction of 2.3 million public rental homes this year.

This new batch of funds will be used to subsidize investment and financing costs, the statement added.

Only the week before, the Finance Ministry had announced that the government will provide CNY31.7 billion in subsidies for other types of housing for low-income families.

The result of this increase in funding for public housing means more homes for the less-than-uber-wealthy, and a low-profile lifeline for government-favored developers.

In terms of housing units, the government estimates that through its subsidies to developers, it will be able to complete five million new homes this year, compared to last year’s three million.

While the returns on investment for subsidised housing may not be as rich as what the developers became accustomed to during the boom years, right about now, the guaranteed returns that government programs deliver can look much better than what investors might get through trying their luck on the open market.

And by introducing this additional supply of affordable homes into the market, the government will also be helping to keep those housing prices down.

So with analysts predicting a 2012 stimulus program of as much as RMB 2 trillion, look for a significant chunk of that cash to go into public housing across the country.