Last week, I proposed a new Home Ownership Scheme that I called “HOS II”. I would like to give more details about the idea. 

HOS II is designed to ensure that all economically active Hong Kong families can afford a decent home with adequate living space. This will remove one key reason for young couples not having children.

The existing scheme, or HOS I, although very affordable, is a lottery and cannot be relied upon to foster confidence among young couples. The Hong Kong Special Administrative Region government is struggling to meet the demand and, to be honest, it will never succeed because in essence, HOS I lacks sustainability. 

It is just too attractive. Compared to private-market homes, HOS I is great value for money and offers an opportunity to profit. No private developer can compete with HOS I. Many young couples prefer to forgo higher incomes and so qualify for HOS ownership rather than buy a flat in the private market. Apart from being too expensive, many private homes are simply too small to raise kids, and their locations may also be less desirable than those of HOS flats.

HOS II is certainly much more cost-effective than a handout of HK$20,000 ($2,560) to families who have a newborn. Giving priority to young couples with a newborn to purchase a HOS I flat does not change the nature of the lottery. 

Although Chief Executive John Lee Ka-chiu promised that an additional 10 percent of the total number of flats will be reserved for the purpose of prioritizing young couples, the odds of being unsuccessful are still quite intimidating. HOS II, on the other hand, tells young people that they are all entitled to buy a home that is affordable if they earn a median-level income among economically active households.

The latest estimate for the construction cost of an HOS flat is about HK$1.09 million. Ignoring land cost, if 8,000 HOS II flats were sold annually at an average price of HK$4.8 million, the annual “profit” would be HK$29.7 billion. Because HOS II flats would all be built on less-pricey land, the government will also get more revenue from land sales. All this will significantly reduce the deficit.

An important aspect about HOS II is that all households living and working in Hong Kong are entitled to buy. The Housing Authority can receive down payments from would-be buyers each year and promise delivery in five years, so all young couples can look forward to having their homes for raising a family. While some locations may not be as accessible as others, the government will ensure that all locations are served by public transport adequately.

In the past, policymakers have come up with different kinds of HOS housing such as the Sandwich Class Housing Scheme, the Green Form Subsidized Home Ownership Scheme, and the My Home Purchase Plan. But none deals with the central problem that lottery systems with attractive “prizes” will never solve the housing deficit. Young couples cannot and should not count on lotteries to raise a family. 

I would argue that public rental housing (PRH), HOS II, and the private housing market serve different purposes. PRH, HOS and the private housing market serve different functions, and all should have access to community services and support. After all, we must ensure that the government can procure the requisite fiscal resources if Hong Kong is to continue to flourish

Offering cheap and fine homes to those below a means-test threshold will always attract those above the threshold to “lie flat” to seek the benefit. Meanwhile, the HKSAR government is committing more and more resources to housing but unwittingly cultivating a rent-seeking culture and eroding the spirit of self-reliance. 

Singapore is noted for its policy of fostering self-reliance. Its Housing & Development Board housing is affordable and available to all Singaporean families. In 1990, over 85 percent of Singapore’s resident population lived in HDB housing. In 2022, only 77 percent did. There is a natural incentive for people to move on to better housing when they can afford it. Offering decent basic housing to all Hong Kong families gives them hope. By reserving prime land to the private market, HOS II is sustainable because financially well-off families will move on to better housing of their own accord.

HOS II and the abolition of the Special Stamp Duty (SSD) are two policy decisions that will restore a measure of health to the Hong Kong economy and bring back hope. With HOS II in place, there will be no need to contain speculation with the SSD, since we will once and for all solve the affordability problem. 

Private-sector homes, rather than publicly subsidized housing, will be purchased as a vehicle for investment and store of value, and that is fine. Smart money will go where the risk-adjusted rate of return is the highest. Hong Kong is a world-class financial center and enjoys free flow of capital. The possibility for Hong Kong’s housing market to serve the needs for investment and for store of value will ensure that the HKSAR government will not lose land-based revenues as an important source of revenue.

Some people may worry that my proposal may lead to the segregation of the less well-off from the well-off as separate communities. I would argue that public rental housing (PRH), HOS II, and the private housing market serve different purposes. PRH, HOS and the private housing market serve different functions, and all should have access to community services and support. After all, we must ensure that the government can procure the requisite fiscal resources if Hong Kong is to continue to flourish.

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.