Striking a blow for the free market
The Consumer Council released its study on the competitiveness of the private residential property market last Thursday and concluded that it is not competitive and not contestable. According to the report, this is mainly due to the market's uniqueness.
The council found no collusion among developers and also recognised the risks involved. The problem lay with the market's structure, but the council believed drastic government action like the breaking up of 'monopolies' in the United States was not needed. The report proposes improving competitiveness. One change would be to lower barriers to entry of high land cost by dividing land for auction into smaller lots.
This should be considered in light of the trade-off between the number of players in the market and the fewer flats that can be developed. This would lead to higher prices which goes against the aim of increasing competition to lower prices. Another idea would be to nurture new entrants and small developers. Increasing new entrants into the residential development process is a natural facet of a free market.
However, in a free market no players should get favoured treatment. The success and failure of investors should be left to a free market which is competitive and free of entry barriers. Another area is to increase the residential land supply through better planning of new land formation and redevelopment of old land. The report also suggests re-zoning obsolete industrial areas for residential purposes.
The Real Estate Developers Association has long suggested private participation in land formation or infrastructural improvements to speed up land for housing as well as requesting greater co-ordination of the development controls to residential development.
In reviewing the maximum permissible plot ratio, it is worth noting that the plot ratio control, because of height restrictions in Kowloon due to Kai Tak airport, has been further lowered despite the relocation of the airport to Chek Lap Kok. The report also proposes a greater balance in housing supply and demand by supporting the private sector's role as facilitators in converting land into homes.
Developers should also be involved in the provision of new infrastructure plus enhancing co-operation between Transport and Lands, Planning and Building departments. These suggestions were proposed by developers as the way to increase the rate of flat production when the annual supply of flats fell behind schedule. Another suggestion worth highlighting is enhancing the marketability of older properties and property in less accessible areas. The segregation of the property market by age and location limits consumer choices. The difficulty that homebuyers have in financing older properties probably led to a preference for new properties.
Could and should the Government dictate lending preference of banks as it has for banks' mortgage lending ceiling? These are factors for the existing market structure to consider. However, the report is not satisfied with making suggestions that will improve the market structure so as to offer more choices to consumers.
The report then advocates short-term distortions to the free market. Yet, doing so renders the market less free and may result in unexpected long-term disadvantages. For instance, fixing a compulsory deadline of sale would strike a fatal blow at what has served us so well: a free-market economy.
Success in Hong Kong has been regarded as amoral but it is that success that has enabled us to house more than half of our community in heavily subsidised homes. Let's not blow it now.