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Published: 09:57, January 04, 2022 | Updated: 09:57, January 04, 2022
Wise decision needed on public housing strategy
By Ho Lok-sang
Published:09:57, January 04, 2022 Updated:09:57, January 04, 2022 By Ho Lok-sang

There are two choices for our policymakers in regard to our public housing policy. The first is to solve the substandard housing problem altogether in a sustainable way once and for all. The second is to offer a lottery-like kind of Home Purchase Scheme so the lucky ones can benefit and profit from it, meanwhile allowing the queue for rental public housing to keep lengthening. It is clear to me that the first option is the right choice for Hong Kong. Unfortunately, we seem not to be moving in that direction. If anything, recent reforms are making the chances of our making the right choice more and more remote. The first choice would mean that public rental housing tenants or HOS owners must buy a better private flat if they want to improve their housing conditions beyond the standards offered by the government.

The Long Term Housing Strategy’s annual progress report shows that 127,100 households are now living in substandard housing, representing an increase of 12,000 households over the past five years. Those living in rooms created from subdivided flats now number 92,200, having increased by 3,200 households just in the past year. The statistics also show that 58 percent of those given accession to a Public Rental Housing flat had waited in excess of six years. Notwithstanding the tremendous effort made by the Carrie Lam Cheng Yuet-ngor administration, the substandard housing problem has not improved.

In response to the dire statistics, secretary for transport and housing, Frank Chan Fan, says the only way to resolve the problem over the longer run is to fetch more land to build more public housing. He is right. Without an increase in supply, the problem cannot be resolved. However, without a plan to curb demand, the demand for public housing is likely to stay high, and we may not have the resources to meet these demands without undermining other government services.

Consider the fact that in the secondary market for HOS flats, of the 208 transactions that had taken place in the three years covered in a study conducted by the Federation of Public Housing Estates, the average profit in each case was more than 100 percent of the purchase price, or HK$2.53 million ($324,500). Such a profit is very attractive, but it is out of bounds for those not living in a PRH flat or those who do not have a proof of eligibility for HOS flat purchases. For a median-income economically active three-member household, it will take 6.5 years of income and zero consumption to achieve a savings equal to that kind of profit. Naturally, the incentive to be in the ranks of PRH tenants or a qualified applicant of HOS housing is huge.

In response to this, the Federation of Public Housing Estates proposed that restrictions to resale should be tightened so that within the first five years, resale will be allowed only if the unit is sold to the Housing Authority and at the original purchase price. This is a totally ineffective way to curb reselling at a profit. The homeowner will almost certainly hold the unit till the required five-year period is over. It is unthinkable that one would forgo the huge profit by selling to the HA before the five-year period is over. It is also highly unlikely that the change will deter profit seekers from retaining the eligibility to apply for HOS housing. What is worse is that the recent discount rate of firsthand HOS flats from the free market price has been increased, which will imply that future profits will likely be even bigger.

Apart from these developments, there are pressures for the standards of HOS housing and PRH housing to be enhanced, and that they can be located in prime, highly valuable sites. This would further enhance the potential for profit and will discourage the tenant or homeowner from moving out. This would increase demand and reduce the “secondary market supply”.

The “HOS Secondary Market” was launched in June 1997. Prior to that, HOS owners would need to repay the owed land price premium to the government at market price before they could sell their flats. The reform does improve the turnover of HOS flats, thus increasing the supply to potential buyers. Unfortunately, this means also that profiting from an HOS flat becomes more probable. Thus the reform will tend to increase demand at the same time as it increases supply.

This is why I believe the government should focus on eliminating the substandard housing problem. The government should avoid making PRH or HOS more attractive and just focus on increasing the supply of both types of public housing at the minimum acceptable quality. We should not sell PRH flats that can create a huge profit for the buyers when they resell the flats, as that will attract demand. We should require, on the land lease of every new HOS flat, that owners must live in the flats, so they cannot become investment properties.

Because of population aging and the need to stay competitive, Hong Kong will continue to need to keep a relatively low tax regime. This is why we need to avoid a collapse of the housing market or an excessive shrinkage of the private housing market. We cannot go the Singapore way, which provides every Singaporean a high-quality housing unit. Even executive suites are available under the Housing & Development Board program.

The author is director of 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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