The Hong Kong economy appeared to do better than expected in the second quarter, growing by 3.1 percent year on year, a shade higher than in the first quarter, which stood at 3 percent. Exports are doing well, as is the financial services sector. In particular, all the signs point to Hong Kong retaking the top spot in initial public offerings globally this year.
However, Hong Kong’s GDP in real terms in 2024 is still lower than it was in 2018, as is private consumption expenditure. Although exports of goods and services in 2024 (HK$5.77 trillion, or $735 billion) were higher than in 2022 and 2023, they were much lower than in 2021 (HK$6.4 trillion). There is not much we can do if exports are not doing so well because our trading partners are not growing, if we face protection, or if there are other uncontrollable external factors. The Hong Kong Special Administrative Region government has been doing a great job in luring multinational corporations to invest in the city and in attracting top talent. The financial services sector in particular did extraordinarily well, accounting for 24.9 percent of GDP in 2023, up from 13.1 percent in 2004 and 14.6 percent in 2014. Private consumption in the first quarter of this year is still down from last year, notwithstanding the 3.1 percent growth in GDP. In fact, at HK$500.4 billion in 2023 prices, it is even lower than that in the first quarter of 2018 (HK$525.3 billion). No wonder life is very difficult for most businesses that serve the domestic market, particularly those in the retail and restaurant sectors.
This is the background for my strong wish that the government revamp its public housing policy. There is evidence that it is a major factor behind Hong Kong’s weak domestic consumption. I responded to the government’s invitation for suggestions for the upcoming Policy Address last week. The first two points relate to public housing policy:
1. Amend the Well-Off Tenants Policy, to charge double rent on households with household income exceeding the Waiting List Income Limit (WLIL). Argument: all public rental housing (PRH) tenants do not have to report their incomes in the first 10 years. Compared to them, households with incomes below the income limit certainly are more deserving of PRH. Charging them double rent and allowing them to stay is already extremely generous.
2. Evict households with household income exceeding two times the WLIL. Argument: they have enjoyed at least 10 years of uninterrupted PRH benefits. If these households leave, the demand for private housing, both for self-use and for investment, will increase. That will boost demand for land and government fiscal revenue, which will allow the government to do more for the needy and to boost the local economy, and particularly to fund the development of the Northern Metropolis. Housing prices will recover, significantly boosting domestic consumption and saving many small and medium-sized businesses. Perhaps surprisingly, it will also save some lives!
If those whose household incomes exceed the Waiting List Income Limit are all asked to pay double rent, and those whose household incomes exceed twice the WLIL are evicted, then the unfairness to those on the waiting list who have to wait a long time and the unfairness to those who are not qualified for PRH because their incomes are slightly higher than the WLIL will be much reduced
Readers can refer to historical suicide figures to confirm my discovery that housing price movements and suicide rates are inversely related. This association is not scientific proof that one causes the other, but it lends support to the hypothesis that housing price declines, through leading to financial distress, may contribute to more suicides.
After 1997, housing prices plunged and kept plunging until 2003. In the summer of 2003, housing prices started to bounce back, and we saw a dramatic U-turn in the suicide rate. In 1997 the suicide rate was 12.1 per 100,000. In 2003 it peaked at 18. From then on, the suicide rate kept declining, falling back to 12.2, and stayed below 13 per 100,000 until 2021. As housing prices started falling in 2021, the suicide rate picked up and continued to rise. A recent headline in the South China Morning Post read: Hong Kong Recorded 1,138 Suicides Last Year, Highest Number Since 2003. It turns out that housing prices peaked in 2021, exactly the year when suicide rates started rising.
There is always a need to define the WLIL in order to target those who need help, but no matter how it is defined, some people will be disqualified just because their incomes marginally exceeded the WLIL. There is simply no satisfactory way to deal with the problem.
While this is true, the current system that entrenches the privilege of those who are admitted to public rental housing seriously amplifies the problem. Any household admitted will not be asked to report changes in their financial conditions until after 10 years. And households with an income up to five times the WLIL could stay on, though after the recent increase in rents for well-off tenants, they will have to pay much more.
If those whose household incomes exceed the WLIL are all asked to pay double rent, and those whose household incomes exceed twice the WLIL are evicted, then the unfairness to those on the waiting list who have to wait a long time and the unfairness to those who are not qualified for PRH because their incomes are slightly higher than the WLIL will be much reduced!
I believe what I propose is the right thing to do. It will boost domestic consumption as well as government revenue. Even more importantly, it will immediately give many more deserving people a public rental housing flat.
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.
