Public resources are limited and must be used in the most effective way to serve the public interest. This means that we must be impartial and imagine that we could be anyone in the community when deliberating over a policy or an aspect of a policy. The Tenants Purchase Scheme (TPS) designates valuable public resources to benefit some lucky ones who preempt others to enjoy the benefit — not because they are more deserving, but because they are public rental housing (PRH) tenants. They have already enjoyed years of benefits as PRH tenants. With tens of thousands of households still waiting for a PRH flat, typically with incomes lower than theirs, and most likely with much worse living conditions, and many others who are not qualified to join the queue yet being worse off, I cannot see why sitting tenants should have priority to buy their PRH flats at a discounted price.

Public policy should never play the lottery game. For the same reason, I have long opposed the way Home Ownership Scheme (HOS) flats are sold. I also object to defining income limits and wealth limits for the benefit of access to low-priced HOS flats. Given the huge benefit of owning an HOS flat, this practice encourages “lying flat”. If TPS is relaunched, PRH flats will become even more desirable. It will attract rent-seeking people to compete with those who need them purely for accommodation. In an article in 1998 headlined Policy Blunder of the Century, I pointed out that the TPS directly competed with the HOS, led to a plunge in HOS flat prices, and explained how this spread to the entire housing market. An unprecedented wave of down-payment forfeitures followed. I also predicted a recession, huge public deficits, and very slow recovery. Hong Kong in 1998 experienced 5.9 percent negative economic growth, the first negative growth since official statistics were available. The contraction was much worse than the 2.2 percent contraction in Singapore, which was at the epicenter of the Asian financial crisis at that time. What can explain Hong Kong’s bigger contraction than Singapore, given that we have the linked exchange rate, huge foreign exchange reserves, and huge fiscal reserves? How could the contraction in 1998 be more than twice that in 2009 after the global financial tsunami?

It is a windfall for those who directly benefit from TPS, but this does not reflect public interest. How about the middle class? Can we really design another class of for-sale housing for the middle class? The sad irony is that some middle-class tax-paying families have had to buy a TPS flat from a previous PRH tenant, who then was able to trade up for a better private flat with the huge profit generated from selling his or her TPS flat! Is this fair? We also came up with a so-called “sandwich-class” housing program. Did it help?

Public policy should never play the lottery game. For the same reason, I have long opposed the way Home Ownership Scheme (HOS) flats are sold. I also object to defining income limits and wealth limits for the benefit of access to low-priced HOS flats

That is why I have argued that we should offer true starter homes (HOS II) for everyone who simply needs accommodation. I would hope that the land lease on these “HOS II” flats specifies that those who buy these flats must live there and must not hold another property. They can resell to anyone anytime without any restriction or the need to repay the land premium. These are modest, safe, and accessible flats, but they must not be located at prime sites like Kai Tak. In order to ensure upward mobility, buyers who can afford it must have the incentive to sell their flats and buy more desirable flats. HOS II flats should not be “nano” flats. At about 400 square feet (37.2 square meters), they are decent homes that allow buyers to raise two kids or even three kids. They sell at about eight times the median household income of economically active families. Those who cannot afford these can apply for a PRH flat, but these PRH flats must be reserved for those who need them the most. Allowing those whose incomes exceed the waiting list income limit (WLIL) to stay on until twice the WLIL will not be welcomed by PRH flat tenants, but will serve the public interest because we should give priority to worse-off families.

I heard a story in which the aging parents worry that their household income may rise so much that they may have to pay higher rent and may even have to leave their PRH flat as their grown-up children enter the labor force. But the children will form their own families and could buy an HOS II flat, as I proposed. The parents’ household income would then allow them to stay in a PRH flat, perhaps in a smaller one in the same housing estate. This way, public resources are better targeted at the needy, and the government’s fiscal sustainability can be better ensured.

I agree therefore that the Housing Authority needs to increase the supply of for-sale flats. I would recommend universal access to all Hong Kong residents. By design, self-selection will screen out those who are better off because HOS II flats do not have as good locations or amenities as most private flats have, and because occupants are not allowed to invest in the property market. Many will prefer to buy private flats, which have much larger potential for capital appreciation. The “build-to-order” arrangement means that anyone can buy a new flat at an affordable price of just eight times the median household income.

The author is an honorary research fellow at the Pan Sutong Shanghai-Hong Kong Economic Policy Research Institute, Lingnan University, and an adjunct professor at the Academy for Applied Policy Studies and Education Futures, the Education University of Hong Kong.

The views do not necessarily reflect those of China Daily.