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Published: 21:38, June 21, 2021, Updated: 10:10, June 22, 2021
What kind of Home Ownership Scheme is right for HK?
By Ho Lok-sang
Published:21:38, June 21, 2021 Updated:10:10, June 22, 2021 By Ho Lok-sang

Mr Leung Chun-ying, the former chief executive of the Hong Kong Special Administrative Region, recently proposed developing a new kind of Home Ownership Scheme housing on the fringes of our country parks. He picked a site on the edge of Tai Lam Country Park, which he says allows the development of 25,000 flats, each of which will be 500 square feet (46.5 square meters). I have always maintained that while Hong Kong does need country parks, we need a better balance between preservation and development. Hong Kong’s population was 4.3 million in 1976, the year when the Country Park Ordinance took effect. Today, Hong Kong has a population of 7.5 million. While our population has increased by more than 70 percent, the area of our country parks/preservation land has also grown.

Our residential land today, sadly, is only about 7,666 hectares. This compares with Singapore’s roughly 10,160 hectares. We have therefore roughly 75 percent of Singapore’s residential land. Yet we have a population at least 24 percent bigger than that of Singapore. Singapore’s parks and nature reserves are just 8 percent of its total land area. In contrast, our grassland, woodland, and shrub land total almost 66 percent. Our country parks and special areas cover an area of 44,312 hectares, or roughly 40 percent of our territory. With hundreds of thousands of people living in abject conditions, this cannot be the balance that we want.

Many people fear that once some tiny area is “chipped off” our country parks, we would eventually lose them altogether.

There is nothing to fear. Our population growth has drastically slowed down over the years and negative growth is expected by 2040. Leung’s proposal is not to use the land for building mansions for the rich, but for building small starter homes to meet our basic housing needs. 

What I like the most in Leung’s idea is that he proposed dispensing with income and asset requirements for the proposed HOS flats. His idea corresponds with mine and that of Shih Wing-ching. The current arrangement with a means test sounds reasonable enough, but it produces huge distortionary effects and also big social costs. The traditional HOS model required HOS homeowners to first pay off the owed land premium that made it possible for them to buy at a significant discount from the market price before resale. This was later changed so that sales to “green form” applicants were allowed without paying off the land premium. But this arrangement continues to create strong incentives for people to try what they can to qualify, since qualifying would allow them not only to buy a flat well below the market price but also to eventually pocket a significant capital gain. This means that people may not be employed where they are most productive, and that the HOS will lure people looking for profit to apply, which will mean that those who just want to meet their basic housing needs may have less chance to buy their dream homes.

The reality is that the bigger the HOS (Home Ownership Scheme) flats you build, the fewer you can deliver quickly, the more land you will need, and the more people will be attracted to queue up to buy. Moreover, the lower the price that you ask, the more you will attract those without an urgent housing need but who merely find the price irresistible

Leung proposed that all Hong Kong people are eligible to buy a starter home at an affordable price. Instead of a means test, his proposal requires the buyer to actually live in the flat and agree not to own another property in Hong Kong. The flat will also be small, so that those who want a better, bigger home will not “opt in”. Compared to the traditional means test, such “self-selection” will save administrative costs and avoid the distortions mentioned earlier.

Leung said that his revised proposal of using only 70 hectares instead of 100 hectares as he first proposed reflects his wish not to use too much of the existing country park land. But the policy will only end up like a one-time lottery as 25,000 families will benefit, but the promise was that all Hong Kong families should qualify.

For the policy to be sustainable and better target those in dire need, it is important that the flats be much smaller and that the price be reasonably raised from his suggested HK$6,000 (US$773) per square foot. The reality is that 500 square feet is already much bigger than the size of a median home in Hong Kong. A Reuters story published last year described how a family found the opportunity to move from an 80-square-foot cubicle to a 290-square-foot transitional flat feel like “winning a lottery”. While it will be nice if all could live in bigger homes, our urgent need is to help those who are in the greatest need faster.

The reality is that the bigger the HOS flats you build, the fewer you can deliver quickly, the more land you will need, and the more people will be attracted to queue up to buy. Moreover, the lower the price that you ask, the more you will attract those without an urgent housing need but who merely find the price irresistible. More fiscal resources will be needed. Sustainability will be a bigger problem. In the long run, smaller flats mean less land needs to be appropriated from our nature reserves and from other sources. This will be more palatable for nature lovers.

The author is a senior research fellow at the Pan Sutong Shanghai-Hong Kong Economic Policy Research Institute, Lingnan University.

The views do not necessarily reflect those of China Daily. 

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