There is a simple logic behind the coexistence of the Public Rental Housing (PRH) program and the Home Ownership Scheme (HOS). The PRH is designed for low-income people who cannot afford HOS housing or private housing. HOS housing is designed to be superior to the PRH, offering an incentive for PRH tenants to “trade up” for better homes. It is available for PRH tenants who have improved financially and can afford the cost of HOS housing. HOS housing, similarly, should be less attractive than the more costly private housing, so that there is incentive for HOS owners who have improved financially to trade up to the still better quality, better located private housing.
The Tenants Purchase Scheme (TPS), announced in early December 1997, was officially launched in 1998. The impact of this momentous policy was disastrous. Because tenants in selected PRH estates were offered the chance to buy the PRH flats they occupied at a deep discount — as much as 88 percent off the estimated market value of the flats — any incentive to buy an HOS housing flat at the official offer price was dissipated.
According to the Housing Authority’s “Final Report on the Mid-Term Review of the Long-Term Housing Strategy,” released in June 1994, public housing tenants had been extremely active in Hong Kong’s housing market. “About 13 percent of PRH tenants or 74,000 out of 580,000 households covered by a survey in July 1993 owned private domestic properties. Another survey on tenants in North Point Estate showed that 18 percent of them owned private domestic properties in the urban areas alone. Some one-third of these households owned more than one property and a small number even owned up to five properties. An independent exercise revealed that PRH tenants accounted for as much as 24 percent of all purchases of private flats by local individuals in the period October 1992 — March 1993. The survey results point to the prevalence among PRH tenants in private property ownership.” Since a TPS flat would sell at HK$70,000 ($8,930) to HK$300,000 in 1998, it would not make sense for anyone to pay 2 to 3 million Hong Kong dollars to buy an HOS flat. After the TPS was announced, many aspiring HOS buyers walked away without buying, thus forfeiting their down payments.
Housing transactions increased in October and November 1998 by a cumulative 9.7 percent, after a decline of 32.6 percent in August and a further decline of 8 percent in September. In a sharp reverse, housing transactions fell a whopping 52.7 percent in December. Housing prices rapidly declined through the entire market, as HOS homeowners who had planned to trade up to better homes found that they could no longer sell their homes at their expected prices. Hong Kong experienced its first negative economic growth in 1998. At negative 5.9 percent, it was much worse than Singapore’s negative 2.2 percent.
I published an article titled Policy Blunder of the Century in the South China Morning Post on March 24, 1998, warning that the TPS policy could plunge the economy into recession and lead to huge fiscal deficits. In the end, it was only after then-secretary for housing Michael Suen Ming-yeung terminated the TPS in November 2002 that the housing market eventually recovered in the summer of 2003, after the severe acute respiratory syndrome pandemic ended.
HOS housing, ... should be less attractive than the more costly private housing, so that there is incentive for HOS owners who have improved financially to trade up to the still better quality, better located private housing
Some commentators argue that TPS flats are a quick way to turn PRH tenants into owners so they can share the fruits of economic growth. But isn’t it better if they buy HOS housing instead, vacating their PRH flats for the benefit of those in the queue? The argument — that they can resell their TPS flats and then trade up for a better home — obscures the fact that when a TPS flat is resold at a handsome profit for the original owner, TPS will lure more profit seekers to queue for PRH flats. These profit seekers will make the queue longer, so those who badly need a roof at an affordable rent will have to wait longer. Moreover, it has to be asked: Why should someone pay a premium price so that a PRH tenant-turned TPS owner can make a handsome profit? The potential buyer, sadly, is likely to be from a middle-income “sandwich-class” household that never had the fortune to gain PRH tenant status. Is it not much more justifiable for the Hong Kong Special Administrative Region government to offer “HOS II” housing to these people who have never had any housing benefit from the government? HOS II, a new housing program that I proposed, is designed to ensure that all economically active families can afford a decent home with adequate living space.
Some commentators argue that a TPS flat is the first step to homeownership. But as was pointed out earlier when I quoted the “Final Report on the Mid-Term Review of the Long-Term Housing Strategy”, many PRH tenants were actively buying flats in the 1990s. The only reason why they are not doing the same today is because owning a private flat is no longer allowed for PRH tenants. The extremely low rents of PRH flats allow tenants to save money to achieve homeownership. The government is extremely generous already because PRH tenants are still spared the need to declare their incomes in the first 10 years of occupying a PRH flat. The savings from much lower PRH housing rent than private housing rent constitute the first step to homeownership. Why should they enjoy a double benefit at the expense of others who have never enjoyed any housing benefit?
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.
