*4.3. Causes of Changes in Property Rights in Pingjiang Historic Block* 4.3.1. External Causes

Most external reasons were influenced by policies from different eras. The timeline shows a series of changes. Figure 3 illustrates the timeline of the evolution of property ownership from 1949. In the early 1950s, every parcel of land in the country was registered, government authorities issued the Property Ownership Certificate, and the 1954 Constitution protected lands and houses.

Figure 4 shows the timeline for changes in property rights in Pingjiang Historic Block. In 1956, the government initiated the socialist transformation of industry and commerce. In the same year, the central government approved the 'Basic Conditions of Private Property in the Cities' and 'Opinions on Initiating Socialist Transformation'. Moreover, private houses in these cities were subject to 'transformation'. In 1958, the compulsory transformation of private property campaign emerged. The primary form was 'lease by the country', which meant that 'the country will be responsible for the overall leasing, distribution and maintenance', targeting certain privately leased houses and drawing a starting line for the transformation; that is, if a property leased by its owner ventured beyond the starting line, then it would be subject to transformation. The intended purpose of this policy was to 'use the methods like purchase, which pays fixed rent during a certain period, to gradually change their ownership'. However, in practice, the government only collected compulsory rent from owners without purchase or similar activities, and ownership remained in the

hands of owners with a Property Ownership Certificate. When the Cultural Revolution began in 1966, the Red Guards seized private properties through violence and claimed ownership. According to Article X of the 1982 Constitution, urban lands shall be the property of the state. Between 1982 and 1988, the government cleared private properties on a massive scale, owners were granted Property Ownership Certificates, and the concept of land ownership ceased to exist. However, according to residents, they lost ownership not only of their land, but also of their houses. mained in the hands of owners with a Property Ownership Certificate. When the Cultural Revolution began in 1966, the Red Guards seized private properties through violence and claimed ownership. According to Article X of the 1982 Constitution, urban lands shall be the property of the state. Between 1982 and 1988, the government cleared private properties on a massive scale, owners were granted Property Ownership Certificates, and the concept of land ownership ceased to exist. However, according to residents, they lost ownership not only of their land, but also of their houses.

*Sustainability* **2021**, *13*, x FOR PEER REVIEW 10 of 17

investment in such buildings and residents' overconsumption.

*4.3. Causes of Changes in Property Rights in Pingjiang Historic Block* 

or damage buildings under controlled protection. Conflicts between the use and maintenance of historical buildings will result in a conflict between the government's invalid

Therefore, currently, historical buildings that suffer from the most severe damages are historical buildings whose property rights belong to the state. This problem is common in historical cities in China. As the maintenance and upgrading of historical buildings require large amounts of financial and technical resources, the government's budget cannot satisfy this demand. Therefore, for such buildings, the government has maintained an attitude of 'not aspiring for the ownership but the existence', in order to transfer usage or property rights, activate and reuse historical buildings by cooperating with social forces, and extend the longevity of such buildings. In the case of complicated property rights, the clarification of property rights and adaptive reuse were problems that needed to be re-

Most external reasons were influenced by policies from different eras. The timeline shows a series of changes. Figure 3 illustrates the timeline of the evolution of property ownership from 1949. In the early 1950s, every parcel of land in the country was registered, government authorities issued the Property Ownership Certificate, and the 1954

Figure 4 shows the timeline for changes in property rights in Pingjiang Historic Block. In 1956, the government initiated the socialist transformation of industry and commerce. In the same year, the central government approved the 'Basic Conditions of Private Property in the Cities' and 'Opinions on Initiating Socialist Transformation'. Moreover, private houses in these cities were subject to 'transformation'. In 1958, the compulsory transformation of private property campaign emerged. The primary form was 'lease by the country', which meant that 'the country will be responsible for the overall leasing, distribution and maintenance', targeting certain privately leased houses and drawing a starting line for the transformation; that is, if a property leased by its owner ventured beyond the starting line, then it would be subject to transformation. The intended purpose of this policy was to 'use the methods like purchase, which pays fixed rent during a certain period, to gradually change their ownership'. However, in practice, the government only collected compulsory rent from owners without purchase or similar activities, and ownership re-

**Figure 4.** Timeline for changes in property rights in Pingjiang Historic Block (summarised by the authors). **Figure 4.** Timeline for changes in property rights in Pingjiang Historic Block (summarised by the authors). 4.3.2. Internal Causes

### 4.3.2. Internal Causes Internal causes included the residential function of houses entering the market as a commodity since the 1980s, thereby resulting in the circulation and transaction of prop-

solved.

4.3.1. External Causes

Constitution protected lands and houses.

Internal causes included the residential function of houses entering the market as a commodity since the 1980s, thereby resulting in the circulation and transaction of property or usage rights, which could lead to a change of property rights, as shown in Figure 5. It presents a summary of the circulation pattern of properties in history according to market conditions. After the Cultural Revolution, numerous private houses transformed into directly controlled public houses under the ownership of the housing authority. In recent years, the number of low-income individuals gradually decreased. Therefore, residents of affordable housing have disregarded the value of houses and overused them. To protect historical buildings, the government intends to recall the right to use such houses. In terms of ownership changes, properties are transferred to the government or private enterprises after purchase and primarily consist of public-interest and commercial houses. The circulation of property rights mainly depends on the government's redemption and is relocated through the transfer of property rights or currency. erty or usage rights, which could lead to a change of property rights, as shown in Figure 5. It presents a summary of the circulation pattern of properties in history according to market conditions. After the Cultural Revolution, numerous private houses transformed into directly controlled public houses under the ownership of the housing authority. In recent years, the number of low-income individuals gradually decreased. Therefore, residents of affordable housing have disregarded the value of houses and overused them. To protect historical buildings, the government intends to recall the right to use such houses. In terms of ownership changes, properties are transferred to the government or private enterprises after purchase and primarily consist of public-interest and commercial houses. The circulation of property rights mainly depends on the government's redemption and is relocated through the transfer of property rights or currency.

**Figure 5.** Circulation of property rights of historical buildings.

### **Figure 5.** Circulation of property rights of historical buildings. **5. Discussions**

**5. Discussions**  Coase's view involves a key word that is a problem to be solved, i.e., resource redistribution. In the field of urban renewal, historical buildings have multiple attributes. As cultural relics, historical buildings have very high historical and artistic values, so knowledgeable people are needed to maintain these buildings through professional means. Houses have residential functions, but houses are dilapidated and entail high maintenance costs, which are hard for residents to bear. Whether to protect them as cultural relics or to continue to allow them to serve as houses is the redistribution of production factors in urban renewal. When the ownership is fragmented it will bring many constraints. Tak-Coase's view involves a key word that is a problem to be solved, i.e., resource redistribution. In the field of urban renewal, historical buildings have multiple attributes. As cultural relics, historical buildings have very high historical and artistic values, so knowledgeable people are needed to maintain these buildings through professional means. Houses have residential functions, but houses are dilapidated and entail high maintenance costs, which are hard for residents to bear. Whether to protect them as cultural relics or to continue to allow them to serve as houses is the redistribution of production factors in urban renewal. When the ownership is fragmented it will bring many constraints. Taking back the usage right and unified planning by the state is more conducive to the preservation of historical buildings [33,34].

ing back the usage right and unified planning by the state is more conducive to the preser-

to the dispensable residential function. The government is a super enterprise, which can control production factors via administrative means [35]. The government also plays such a role in promoting urban renewal [36]. For the protection of cultural relics, the government should promulgate compulsory regulations to restrict the behaviour of users, whether property rights are publicly or privately owned, under the protection of the law, whilst the use function should be considered. When property rights are public, the government has the right to take back the house and optimally allocate resources. While retaining the artistic and historical value and the use function of traditional architecture, the government can protect the historical buildings according to the public and market demand. Through policy adjustment, the government can expand the market of historical buildings [35]. Experiential reconstruction will become the trend in future historical building protection. This type of reconstruction resembles 'haematopoiesis', which can also solve the problem of a shortage of funds for the protection of historical buildings. For houses with use functions belonging to residents, when the property right is clear and the

Indeed, historical and artistic values cannot be copied and reconstructed, as opposed to the dispensable residential function. The government is a super enterprise, which can control production factors via administrative means [35]. The government also plays such a role in promoting urban renewal [36]. For the protection of cultural relics, the government should promulgate compulsory regulations to restrict the behaviour of users, whether property rights are publicly or privately owned, under the protection of the law, whilst the use function should be considered. When property rights are public, the government has the right to take back the house and optimally allocate resources. While retaining the artistic and historical value and the use function of traditional architecture, the government can protect the historical buildings according to the public and market demand. Through policy adjustment, the government can expand the market of historical buildings [35]. Experiential reconstruction will become the trend in future historical building protection. This type of reconstruction resembles 'haematopoiesis', which can also solve the problem of a shortage of funds for the protection of historical buildings. For houses with use functions belonging to residents, when the property right is clear and the transaction cost is relatively low, the government hopes to maintain the decision-making power of the housing function. Residents who live here are willing to move out after they receive satisfactory compensation, given that they do not have the property rights of historical buildings and cannot afford high maintenance costs. Generally, the compensation they get is much higher than the value of the house because the high-value properties tend to be overcompensated [37]. Therefore, those who have no property rights but only the right to use them are willing to cooperate with the government. Even the nail households just want to haggle over the compensation rather than move out. Once an agreement is reached, the government can take back the property rights.

However, when property rights are private, property owners know that permanent private property rights are scarce resources. The property owners have the exclusive right to alienate or to not alienate the buildings [38]. In addition, they have lived in their own houses for generations and are not willing to hand them over to the state easily. In their minds, the transaction price is very expensive. The government only plays a supervisory role and does not pay high relocation fees, thereby forcing property owners to protect their houses.

With due reference to key points of the Coase Theorem highlighted in the above Section 2: Theoretical Framework, when these rights belong to the same subject, the owner has initiative and motivation to protect and maintain a historical building effectively. The research results substantiate the authors' view as proposed in the beginning. For example, during the survey, privately owned buildings, such as the Fang residence on Xuan Qiao Alley, were in a satisfactory condition. Private owners had lived here for generations. However, when the right to use is transferred, ensuring that the user will seriously protect the historical building is difficult. As shown in Figure 3, the property rights system has continuously changed since 1958. Therefore, defining the rights and responsibilities of parties is challenging. Residents only possess the right to use a historical building and thus lack a cultural identity and sense of belongingness. They have no enthusiasm to maintain the 'public house', but hope to obtain tangible benefits from its demolition. The rent of such houses is too low to afford maintenance costs. These housings are dilapidated, suffering from the daylighting and dampness for years. There are various safety hazards in the house with a danger of collapse at any time. Meanwhile, the Housing Management Department, which has right of ownership, also lacks sufficient funds to protect historical buildings. 'Rental houses' and 'public houses' suffer from damages or are destroyed, similar to the Xu residence.

Moreover, when the government attempts to recall right to use, large numbers of residents become unwilling to move out. The term 'nail households' refers to people who refuse to move out of buildings for demolition, often owing to disagreements about compensation, which severely delays the progress of the redevelopment process. The DeLin Hall Wu residence is an example of such a case, which was delayed for five years. In

the above case, the non-zero-sum game between residents was a typical prisoner's dilemma model. Some people are willing to move out early and get rewards and resettlement houses. However, some nail households are willing to get more compensation. The personal best choice is not the group's best choice. In the face of interests, the relationship between people becomes subtle. While competing for interests, they also have selfish desires to get more. In a group, individuals making rational choices often lead to collective irrationality.

Through interviews with developers and contractors of many projects, it was understood that property rights and funds are common problems in all current historical building reconstruction projects. The biggest uncertainty in funds is the demolition compensation, and the contractor must overcome the difficulties that cannot be overcome by traditional crafts.

For the 10 pilot projects of the first batch of ancient building protection and repair projects in Suzhou, some ancient buildings abandoned the reconstruction, and some projects were promoted. The whole project progressed very smoothly when all tenants accept the reconstruction, such as with the former Fang residence, the current Xiao Hui Wang Art Centre. Regarding the projects that all the residents refused to relocate, such as private property owners or projects with proper building maintenance and living environment, the government gave up the relocation and allocated funds for the optimisation of living conditions, from the reconstruction project to the people's livelihood project. For most projects, some residents coordinated with the relocation and some residents refused. Demolition was repeated in each process along with the betrayal and cooperation between households, and the Nash equilibrium gradually became Pareto Optimality. That is, in this situation, no property right owners or residents could be better off without making at least one individual worse off [21]. It was considered to be a minimal notion of efficiency that did not necessarily result in a socially desirable distribution of resources [39,40]. Although this was not the optimal solution, it was the only way to solve the property rights problem of historical building adaptive reuse.

Such cases can be seen everywhere in China where cities are developed constantly, such as in this red-headed document, *Announcement of the Suzhou Municipal People's Government on the Determination of Houses on State-Owned Lands* (Su Fu Gong [2013] No. 3), which is the housing compensation plan of Pan Zuyin's former residence (a historical building in Pingjiang Historic Block) project:

*The expropriated person may choose monetary compensation or exchange property rights. The expropriated households who choose the monetary compensation can purchase the fixed-quotas commercial houses provided by the government. If the property rights exchange is chosen, the value of the property exchange houses and the expropriated houses will be calculated after the price is calculated at the same evaluation point, and the difference is settled.*

Among them, (1) monetary compensation means that in the house expropriation compensation, the owner of the expropriated house is compensated in monetary form based on the market evaluation price. (2) Property rights exchange means the exchange of houses provided by the house expropriation department for the exchange of property rights and the houses to be expropriated. After the price is calculated, the difference is settled. For the residents who cooperate with the relocation, different relocation incentive fees can be obtained depending on the degree of cooperation.

Through the above analysis, the model can be improved as shown in Figure 6. It is consistent with the hypothesis model that privately owned historical buildings are still protected and repaired by private property owners. In order to protect the interests of the private property owners, the private parts of the public–private ownership buildings will still belong to the private property owner, and the buildings will be maintained by the private property owner. Similarly, the Public Institutions shall be responsible for the management of the parts in public–private historical buildings and the public–private historical buildings that belong to them.

a symbiosis to work together.

**Figure 6.** Governance Model for Historic Buildings Conservation in China (proposed by the authors). **Figure 6.** Governance Model for Historic Buildings Conservation in China (proposed by the authors).

**6. Conclusions**  Taking Pingjiang road as a test bed for analysis of property rights in historical buildings, this study highlights two key findings through the application of the Coase Theorem in the conservation of historical buildings. First, the impact of property rights, that is, whether the property rights are clear or not, will affect the progress of protection work. In this governance model, the most complicated part belongs to the Housing Administration Bureau, which is called direct management of public housing. Due to the historical reasons mentioned before, this type of housing is rented to citizens with poor economic conditions. To avoid excessive use, local governments should take back the usage rights of these buildings gradually through two ways, that is, property rights replacement and monetary compensation. For a successful adaptive reuse project, two principles should be followed, that is, to obey the government's unified organisation and management, and to follow the government's planning scheme and functional orientation.

dilapidated buildings. They are willing to move to new homes if the government will give a satisfactory compensation. Meanwhile, six buildings are owned by private individuals, accounting for 100% of private buildings. These private residents refuse to make deals with the government. Yet, the government is not willing to pay high fees to obtain the property rights of such houses. These types of property rights are distinctive, and thus, renovation or maintenance work should be carried out smoothly. However, the public– private ownership of property rights is considerably complicated. A total of 22 historical buildings in Pingjiang Historic Block are public–private owned, and 14 of them (accounting for 64%) cannot be promoted for renovation. Five buildings have been transformed, and two are under renovation. However, from the perspective of renovation projects, several owners of private properties, including such buildings, are willing to trade with the government, whereas the rest of them refuse. For private property owners who refuse to trade, the government will transform the public areas of their buildings. The private property owners can still reside their own houses, but they have to take up the responsibility of routine maintenance of the historical buildings in the areas that they own. The government will help them with the exterior transformation. Without affecting the daily life of private property owners, the appearance of buildings with private property rights should be made consistent with that of the public parts, resulting in consensus between landscape and art value. Such complex cases can explored be in detail in future studies. The 'bargain' mentioned by Coase also exists in the protection of historical buildings. In the process of repeated communication, the government and private owners can achieve the optimal allocation of resources. When both sides cannot agree on the price, they should arrive at

The analysis shows that whenever a whole building is publicly owned, the transaction cost to the government is close to zero, and the government has the autonomy to renovate the building. Among the 35 public historical buildings in Pingjiang District, 20 of them have been renovated and are managed by the government, and seven are under renovation, accounting for 77% of effectively protected public historical buildings. Residents in the remaining eight buildings have expressed their desire to move away from the dilapidated buildings. They are willing to move to new homes if the government will give a satisfactory compensation. Meanwhile, six buildings are owned by private individuals, accounting for 100% of private buildings. These private residents refuse to make deals with the government. Yet, the government is not willing to pay high fees to obtain the property rights of such houses. These types of property rights are distinctive, and thus, renovation or maintenance work should be carried out smoothly. However, the public–private ownership of property rights is considerably complicated. A total of 22 historical buildings in Pingjiang Historic Block are public–private owned, and 14 of them (accounting for 64%) cannot be promoted for renovation. Five buildings have been transformed, and two are under renovation. However, from the perspective of renovation projects, several owners of private properties, including such buildings, are willing to trade with the government, whereas the rest of them refuse. For private property owners who refuse to trade, the government will transform the public areas of their buildings. The private property owners can still reside their own houses, but they have to take up the responsibility of routine maintenance of the historical buildings in the areas that they own. The government will help them with the exterior transformation. Without affecting the daily life of private property owners, the appearance of buildings with private property rights should be made

consistent with that of the public parts, resulting in consensus between landscape and art value. Such complex cases can explored be in detail in future studies. The 'bargain' mentioned by Coase also exists in the protection of historical buildings. In the process of repeated communication, the government and private owners can achieve the optimal allocation of resources. When both sides cannot agree on the price, they should arrive at a symbiosis to work together.
