Roof Over Head

Ever since I have lived in Hong Kong the price and availability of residential accommodation have been burning issues. Governments come and go, but none seem able to solve the problem of how to put a reasonably priced roof over everyone’s heads. As far as newspaper columnists searching for a topic are concerned, this is the subject that keeps on giving.

In the final year of British administration, there was a Performance Pledge attached to the Budget to provide 425,000 housing units over five years. That promise never seemed to attract much attention (or credibility) at the time, perhaps it sailed away into the sunset with the Royal Yacht Britannia. The first SAR administration picked up the idea and turned it into a much more exciting “85,000 flats per year” headliner. The stated aim was to move progressively towards home ownership of 70 per cent. However, after the East Asia economic crisis engineered a crash in property prices that policy platform (unfairly) got the blame and the programme came to a crashing halt. Not surprisingly, picking a fight with two groups of powerful vested interests at the same time (property developers; and existing middle class flat owners now in negative equity) was not an attractive proposition.

So here we all are many years later, and 10 years after I first started writing about the subject. We still have the same problem and the same choice of solutions: either use statutory powers to resume large areas of agricultural land in the New Territories to develop new towns; or engage in large scale reclamation.

The decision to set aside significant sums in the 2020 Budget to keep alive the dream of Lantau Tomorrow suggests the government has concluded the first option is politically too difficult so the second is the way to go. Reluctantly I reached the same conclusion a while back. If the chief executive and legislature had been elected by universal suffrage, the government would have the mandate to face down the Heung Yee Kuk and the property developers who between them control most of the land in question. But we are quite some way from the political reform necessary to achieve a strong popular government. So East Lantau Metropolis here we come.

While we are grappling once more with the problem of providing sufficient land to boost housing supply, it is also worth taking up the cudgels again on the need to rebuild the housing ladder. The idea is that the less well off begin as public rental housing tenants and gradually progress to subsidised housing purchase as their circumstances improve, then on to private housing. The ladder has effectively broken down in recent years.

The Our Hong Kong Foundation recently published a policy outline entitled “Vision of Universal Affordable Housing in Hong Kong” which set out how we could boost our current low home ownership levels (51% against 91% in Singapore). Of the 10 recommendations the paper included, the government has so far adopted four which might be thought not a bad effort considering the many other problems on its plate. But it is worth pursuing the remainder, in particular the proposal to relax rental and sales restrictions.

Let us rehearse the benefits of taking special measures to boost home ownership levels, lest we forget them. First, it is a positive step towards narrowing the wealth gap as more people enjoy a share of the community’s assets. Secondly, it gives low-income households a chance to buy. We cannot all expect to live in a mansion on the Peak, but turning sans culottes into citizens with a modest stake is a progressive move. Thirdly, turning renters into owners unlocks land value (more on this point in a moment). Fourthly, there tends to be more efficient utilisation of housing units. Finally there are clear social benefits of giving more people a tangible stake in their community.

How does encouraging tenants to purchase their property unlock value? Take two hypothetical public rental units, one larger and one smaller. Each has been occupied for a long time by the same people. The larger one is now occupied by an elderly couple whose children have grown up and moved out. The smaller one is occupied by a younger couple with teenage children. The value of the flats on the open market would be $3 million and $2 million respectively. But they are not worth these sums to the occupants, they are not owners, they only have the right to live there. But nor are the flats worth anything to the government or Housing Authority.

Now let us suppose we allow the tenants to purchase the flats they occupy at a discounted price – say equivalent to construction cost only. (There is even an argument for allowing sale at a nominal price, but leave that discussion for another day.) The elderly couple are willing to sell for $3 million provided they can buy a smaller unit for $2 million which is still appropriate for their needs. That transaction leaves them with an asset they can pass on to their children plus one million in cash to defray living expenses. Meanwhile the younger couple have used the $2 million from sale of their smaller unit plus a mortgage of $1 million which they are easily able to repay to acquire the larger unit more appropriate to their circumstances.

I admit I have contrived this hypothetical case so as to make it easy to follow. But the principles are sound. There are practical matters to address (size of discount, whether and how to reclaim all or part of the discount on sale, maintenance of common areas and adjacent slopes etc) but all are solvable. There are also issues of equity (is it fair to other taxpayers in the queue for public housing to let these assets go cheaply etc). Other governments have cleared these hurdles, and so must we.

By all means let us press on with the plans to increase the number of apartments, in particular for public rental housing. But let us not take our eye off the need to manage that stock more efficiently.