A recent article in Ming Pao by Professor Michael Wong of the University of Hong Kong and others pointed out that the serious shortage of Home Ownership Scheme (HOS) housing has caused significant distortions in the city’s social development. I agree it is imperative that Hong Kong offer relatively basic HOS housing to all households that want one. That is the idea of the HOS II that I proposed in this column previously.
The reason I insist that these HOS homes must be relatively basic and be available for all residents is that these homes must not distort the Hong Kong economy inordinately, and must be fiscally affordable over the long term.
The article proposes that the Hong Kong Special Administrative Region government should proactively increase high quality HOS housing in sufficient quantities. This would be wonderful if we had the resources and if we had taken this approach from day one.
Unfortunately, in the beginning, we did not have the resources, and many residents have strived hard just to afford a low-quality home in the private market. Because of the shortage, and rapid growth in the economy in the 1960s, 1970s and 1980s, housing prices kept rising; nonetheless, the homeownership rate has still climbed significantly. Many homeowners have made a fortune because their homes have appreciated greatly in value. In 1985, about 30 percent of the 1.418 million households were private homeowners. This translated to some 425,400 households. By 1997, the percentage had risen to 36.2 percent. This translated to about 695,000 households. By 2024, the number of private homeowning households had risen further to about 900,000. Since the 1997 handover, more than 200,000 households have become private homeowners. If there is a significant increase in HOS housing and together with substantial improvements in quality, not only will developers have no incentives to develop more private homes but it will result in a sharp decline in homeowners wealth.
If well-off households become less well-off, perhaps it is not a problem. It would be a big problem, however, if homebuyers who had confidence in Hong Kong and who had struggled to become homeowners on their own face financial difficulties. Their financial woes would suggest that buying a home in the private market is not advisable. Developers would lose interest in bidding for land and building private homes. The government’s revenue would decline. Its financial burden would rise. It appears to be an unsustainable policy.
Increasing HOS supply and improving the quality of HOS housing will compete directly with private developers and will cool the interest of people in buying private homes. As long as HOS flats are sold at a notable discount against the market price, there will always be oversubscription and a need for a lottery mechanism.
That is why I prefer building modest subsidized homes that are relatively basic, leaving room for private developers to provide better located, better quality homes, for those who want to improve their living conditions. If the subsidized homes are relatively basic, and located in less desirable locations, we can meet the basic needs of all those who need a starter home. Because better homes are only available on the private market, there will be motivation to work harder to buy a home of choice.
Increasing HOS (Home Ownership Scheme) supply and improving the quality of HOS housing will compete directly with private developers and will cool the interest of people in buying private homes. As long as HOS flats are sold at a notable discount against the market price, there will always be oversubscription and a need for a lottery mechanism
The Hong Kong Monetary Authority on April 30 released the results of its survey on residential mortgage loans (RMLs) in negative equity at end-March. The estimated number of RMLs in negative equity was 40,741 cases, up from 38,389 at end-December. The aggregate value of RMLs in negative equity increased to HK$205.9 billion ($26.2 billion), compared with HK$195.1 billion at end-December. As the delinquency ratio of RMLs in negative equity remained low, it means that our banks are safe. We still have to grapple with the problem of our middle class falling into financial difficulties. The middle class is an important driver of the economy. Home price buoyancy also allows the owners of small and medium-sized enterprises to use their homes as collateral for bank loans.
It is important for the government to plug the holes for rent-seeking. The government’s recent revisions to the well-off tenant policy in public rental housing are a good start, but they are clearly not enough. Raising the rents for well-off tenants to provide some interim room before moving out is fine. But how can we justify disqualifying someone whose income is barely over the Waiting List Income Limits (WLIL) while allowing households with household income barely less than five times the WLIL to stay on?
Under the new policy, households whose family income exceeds two times and is not more than three times the prevailing public Rental Housing Income Limits will be required to pay 2.5 times net rent plus rates. All these households have enjoyed at least 10 years of extremely low rent before being required to biennially declare their income, assets and whether they own domestic properties in Hong Kong. An applicant whose household income is barely over the limit and who has never enjoyed public rental housing has to give way to someone who is much better off, and has already enjoyed over a decade of the privilege. Is this fair?
The author is an honorary research fellow at 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.
