Investment compensation mechanism for affordable housing construction project based on decision function

With continuously accelerated development of China’s urbanization, the price of commercial housing is also rising and the housing problem has become a hot issue in China’s social development at current stage. The affordable housing, as a means to guarantee the housing rights of medium- and low-income groups, has seriously insufficient attractiveness to the returns on project investment due to its non-profit nature. The social capital is unwilling to enter this field and thus leads to inadequate supply of affordable housing. Therefore, it is very necessary to establish an investment compensation mechanism for affordable housing construction. Based on decision theory and reasonable return principle, this study constructs an investment compensation model for construction of rental-type affordable housing based on satisficing decision. Finally, it uses the data of a public rental housing project in Beijing, China to conduct empirical analysis, quantifies all government subsidies and actually calculates the government compensation amount with the net present value of project as the decision goal. The results show that: (1) determining the reasonable profit rate of affordable housing developers is the key point to promote the investment and development of affordable housing; (2) investment compensation model for affordable housing construction based on satisficing decision can be used to objectively calculate the compensation amount payable to the affordable housing developer; (3) the private sector that invests in affordable housing should not passively wait for subsidies and preferential policies and measures of the government; instead, they should actively innovate in the profit model of affordable housing and promote the construction of affordable housing. The study shows that the investment compensation model for affordable housing based on decision function is good to judge the project feasibility. Compared with other models, it improves the model’s interpretation and prediction ability and provides new decision ideas and methods for the government and enterprises to develop and construct affordable housing.