The Vision Thing

It seems churlish for someone like me to complain about this year’s Budget.

After all, I and I suspect most readers of this newspaper directly benefit in ways large and small. Property owner? Tick, that’s two quarters of rates that won’t be charged. Pay Salaries Tax? Another tick and that’s $20,000 more coming into Michael’s hot sweaty palms. Operate a small company and pay Profits Tax? Yet another tick and still more money coming back. Plus of course a whole bunch of freebies for the less well off in terms of extra social security benefit, rent for public rental units squashed for a month. What’s not to love?

My quarrel is not with what is in the Budget but what is not there. What the elder George Bush called the vision thing. What the community has been really crying out for is a dramatic effort to break the psychology accepted by both property developers and potential buyers that prices are on an inexorable upward trend that will never end.

Why are some developers holding flats off the market, as some undoubtedly are (there is a block near where I live which was finished two years ago but the lights are only just beginning to go on in the evening)? Simple: with interest rates so low the capital cost of carrying the flats is much less than the increase in price that can now be charged.

Why are buyers rushing to buy ludicrously small apartments at ridiculously high prices? Because right before their eyes they can see that prices are still on the increase. The situation won’t last of course, it never does, but nibbling at the edges with a site here and a plot there will take too long for the braking effect to take hold.

We can look to two American policy makers to teach us what to do, albeit they were acting in completely different contexts. Ben Bernanke saw that the first Japanese attempt to reflate its economy in the early 1990s failed because the amount of money involved was too small. He went to the other extreme and created US$3 trillion dollars of new money and the US economy is now growing robustly again.

The younger President Bush made many disastrous mistakes, especially in foreign policy, but at least he got one thing right: when invading Iraq he authorized a campaign that would create a sense of "Shock and Awe". America’s friends would know they were really committed, and their enemies would know exactly what was in store.

Hong Kong needed – needs – something similar in our housing policies. Now it’s probably not a good idea to carpet bomb the head offices of Cheung Kong, Sun Hung Kai and Henderson – too many innocent people might get hurt as well.

But how about declaring in the Budget Speech that you were setting aside $100 billion from the fiscal reserves to pay a substantial share of the cost of a major new public rental housing estate, and another $100 billion from taxpayers’ money held by the Monetary Authority to do the same for the Home Ownership Scheme. If $200 billion were not enough to change the psychology, double it. Minimum size of both programmes 500 square feet.

Developers and desperate buyers (and would be renters) could see the jig was up and finally the market could start to do its work. Would prices fall some 15 – 20%? That was the fear that kept Donald Tsang and Michael Suen firmly rooted in the nervous chair. Probably a bit more at first but so what, our market always overcorrects in both directions. All we would really be doing is blowing off the froth of the last few years.

We need to send a message that Hong Kong is not just for tycoons and the very well off, it is for all the people of our city, and that starts with a decent place to live at a reasonable price.

So my quarrel with the Budget is not with what was in it, but what was not in it. Keep what there is, but add a couple of new blockbuster items as well.

We cannot really blame the Financial Secretary for this lacuna. We don’t pay him to have a vision, and we should start to worry if he showed signs of developing one. We pay him to manage public finances prudently, which he has done in spades. We must look higher up the food chain for that.

Shock and Awe, Guys, the Vision Thing.