Shanghai Newspaper Interview - Hong Kong's Public Housing Program

Q1. Can you describe briefly the nascence of Hong Kong’s public housing program and its dwindling importance in recent years, and elaborate on the reasons why there has been a stall in the construction of public housing in the last decade?

A1. Simply put, Hong Kong’s public housing program can be said to consist of two components: public rental housing and the Home Ownership Scheme (“HOS”). The former was initiated in the year 1953 after a big fire destroyed a big patch of huts in Shek Kip Mei, with the aim of providing basic shelters for the homeless and the destitute; while the latter scheme was introduced in 1976 by Sir Murray MacLehose and was meant to provide subsidized self-owned homes for the low-income group in order to nurture a sense of belonging among citizens. The HOS had stringent rules regarding income qualification and resale, and the units were basically priced at a discount which approximately equaled the land premium, which had to be paid back to government on resale. These two housing schemes, along with private residential rental control measures which had been in place since the 50s, always operated effectively under the colonial government. But then after the Asia financial crisis hit in 1997, in the face of a property market debacle and wrath from negative-equity homeowners, CE Tung’s “85,000 flats a year” proposal got trashed, followed first by a complete revocation of rent control and then by Secretary Suen’s market-propping nine-point plan, which included indefinite suspension of the HOS and drastic cuts in land supplies. However, these measures which had been meant as short-term temporary measures were allowed to stay on and on, even after the property market went into a frenzy again in the period 2005-2010. Meantime, the Tsang government has been sitting on its hands and doing nothing about the scalding market, which is the chief cause for widespread grievances in society.

Q2. In your view, what would be the prerequisite for the SAR government to re-energize its public housing program?

A2. All that is needed is for the SAR government to have the will and determination not to side with the vested interest groups. Of course, there need to be a general consensus in society too and for most people to agree that for the overall benefit of society and the long-term interests of future generations, that it is necessary to rectify the immensely skewed housing market and acute economic concentration, plus their attendant problems like cross-generation poverty and the polarizing rich-poor gap. At the same time, the large conglomerates have to seriously reflect and act on their corporate social responsibilities.

Q3. Which particular aspects of the SAR’s early success in its public housing policy could serve as a model for the mainland cities?

A3. As facts speak for themselves, Hong Kong’s public rental housing and HOS, along with private residential rent control, all operated effectively in colonial times and benefited different income groups in a fair manner.

Q4. According to your observation, what are the main shortcomings of the mainland’s public rental housing policy?

A4. I’m not familiar with the mainland’s public housing system, and therefore am not well-positioned to comment.

Q5. Whether in HK or the mainland, is there a conflict between public housing policy and the private residential sector? And if so, where does the conflict lie?

A5. Public housing is no doubt a welfare policy. On the other hand though, accommodation is also a basic human right. As Hong Kong’s past experience shows, there is no conflict between public housing and the private housing market. Besides, under Hong Kong’s high land price policy, there is indeed a need for public housing (including HOS) because it provides a buffering zone, a mediating agent. The private residential market has its own cycle based on the economic one. To say that it would be adversely impacted by HOS is just a lame excuse thrown out by selfish vested interest groups.

Q6. If you compare HK’s public housing policy with the Singapore model, in what way is the latter superior to the former?

A6. As far as I know, under the Singapore model, not only is the buyers’ purchasing power taken into account, flat sizes and building quality are also key considerations in the construction of public housing units. In this respect, there is much room for improvement in Hong Kong.

Q7. Do you think that the mainland should follow Singapore’s example in the area of public housing?

A7. Singapore’s public housing model has long won international acclaim. Whether for Hong Kong or the mainland, following an example that has proven successful should be quite harmless. According to a netizen who is familiar with the Singapore public housing sector, Singapore has a population of 3.3 million, and it has 850,000 units of subsidized housing and 45,000 rental units. Assuming 2.5 persons make up one household, almost 70 percent of the population are living in public housing units.

Q8. Apart from the Hong Kong and Singapore models, what other countries’ public housing models are good examples for the mainland to consider following?

A8. According to a report in the Globe magazine, Germany’s land and housing system and policy have been instrumental in rendering its housing market relatively stable in the past decade. The reason is that the German government has always seen to it that there is a balance in demand and supply. At the same time, it has promoted the construction of private rental units and has in place regulations that protect tenants. It also encourages the construction of self-built homes and co-op homes so as to deter possible monopolization of the residential market. Besides, it also discourages speculation by imposing heavy levies and regulates private residential prices and rents through instituting relevant laws. Developers or landlords who profit unreasonably from pricing or rent are considered to have committed a criminal offense. Indeed, the German model seems to be a good example worthy of copying.

Q9. Starting from the 90s, many mainland city governments and developers have been copying Hong Kong in the area of land and property sales procedures (like auctioning lands and property pre-sales), what defective aspects of Hong Kong’s system do you think they have copied?

A9. In Hong Kong, the adverse effects of implementing a high land price policy include a very volatile property market and a high degree of wealth and economic concentration. Before the handover, the colonial government’s public rental housing, HOS and private rental control measures together had a stabilizing effect on the property market. Also, it was not tolerant of market manipulation by developers or of speculators. But after the handover, the SAR governments, while tossing out all the buffering measures instituted by the colonial government, have been over-reliant on land revenue for their fiscal health and have been seen to implement policies favoring large developers. They have also ignored the inflationary impact caused by explosive price and rent increases and the obnoxious effect on citizens’ livelihood. All this has stoked HK people’s anger and grievances. If the mainland cities blindly copy Hong Kong’s land system without thoroughly understanding the full story behind it, their governments may be in for some nasty surprises.

Q10. You mentioned in your book that the HK government is hijacked by the developer conglomerates. A similar situation is starting to emerge in the mainland where city governments are preoccupied with land development. How do Canada and other European countries prevent the situation where real estate can exert a dominating influence on their economy and society?

A10. In Canada and most European countries, they have tax systems that target capital gains. For example in Canada, rental income from investment properties (i.e. not for self-use purpose) is subject to income tax, then there is also property tax, and 50 percent of any profit on resale is subject to income tax; the income tax rate is highly progressive. Moreover, land is aplenty, land ownership is scattered, there are a great number of small developers and the entry barrier is not high (unlike Hong Kong where the government is interested in keeping land prices high); hence the property market is not prone to being cornered by a few groups. Besides, there are government and quasi-government organizations that provide subsidized rental housing for the low-income group. Recently, mainland investors have helped to push Vancouver property prices to unsustainable levels and this has triggered protests from local people. Since this is a democratic society, there is no way the government can remain unresponsive to public demand.

Q11. There is a viewpoint that East Asians’ love of property originates from a cultural factor, and it is this factor that has caused the property markets in East Asian countries to record continuous steep rises in the past several decades. Do you agree with this viewpoint?

A11. I’d rather blame the phenomenon on human greed rather than cultural factor, plus the fact that many East Asians are prone to having a gambler’s mentality. But compared to speculating in commodities or other instruments, property speculation has an immoral twist to it. The reason is that accommodation is a basic means of subsistence and it has no alternatives. Housing demand is inelastic. Therefore, any responsible government would make regulating the housing market its top priority job.

Q12. In your opinion, is property simply a commodity, or is it a financial vehicle, or part of a social public service?

A12. I personally think that property in the form of a shelter is a basic necessity in life. On the other hand though, in a free economy, the commoditization of property is also a private property right. However, any government has a duty to solve the housing problems of those in need. It follows, therefore, that a more acceptable solution would be to have a two-tiered property market, one targeted at providing adequate welfare housing to those in need and the other tier a private one, with the former being run and regulated by government and the latter left to the forces of a free market.