Sandwich scheme hard to swallow
IN LAST year's annual Budget debate, there was cross-party consensus that there should be some form of assistance to help the sandwich class meet their housing needs.
The background was that soaring housing prices were making home ownership a reality only for the very top of the income hierarchy. The Government seemed to recognise this problem and responded by setting up an interdepartmental working group chaired by the Secretary for Planning, Environment and Lands, Mr Tony Eason.
The Governor, in his maiden Policy Speech in October, announced a scheme to help around 13,000 sandwich class families by setting aside land in the annual land disposal programme for sandwich class housing.
Although there was a delay in the Sino-British Land Commission meeting due to the current political row, a meeting to agree the 1993-94 land disposal programme was finally held and 4.8 hectares of land was set aside for sandwich class housing to be builtby the Housing Society. Last week, the Government released a proposal outlining interim options it is considering ''to meet the needs of the sandwich class for home purchase assistance in the short term''.
It was interesting, though, that the $2 billion for this purpose had already been earmarked in the Financial Secretary's Budget speech in March without any concrete plan at all at that time.
While we agree with the Government's premise that the solution to the sandwich class housing problem ''is to extend the public housing programme'' - and we therefore support earmarking land for this purpose in the annual land disposal programme - we are gravely concerned that the proposed interim measures are, in fact, a contradiction to this premise and they run the risk of fuelling the housing market, to the detriment of all the sandwich class.
From the point of view of public policy, the interim proposals are neither cost-effective nor equitable. These are the two basic criteria that Meeting Point and its Legislative Councillors use to scrutinise Government policy and funding requests.
The crux of the matter, as the Financial Secretary correctly pointed out in last year's Budget speech, lies in the exorbitant price of housing, which is far beyond the affordability of the sandwich class.
Proposals must, therefore, address this problem of affordability and, hence, must address the problem of housing prices. This means that any proposal put forward, including ''interim'' ones, should not contribute to any escalation of housing prices.
On the contrary, it is far better if it exerts a cooling effect. The Government's proposed ''long-term'' measure of extending the public housing programme hits the nail directly on the head.
Those sandwich class families who are able to buy their own home under this extended public housing programme no longer need to buy from private developers and speculators. This means that some demand, which otherwise would have to be satisfied on the private housing market, is, effectively, taken away.
The effect is a cooling off of the market.
If housing prices are affordable, obviously those sandwich class families who are unsuccessful in getting sandwich-class public housing for the time being would reap the benefit should they decide to buy their own home on the private market. All potential home-buyers, regardless of income, benefit from more affordable prices.
The four interim proposal options, be it interest free or low interest loans, subsidy to purchase price, monthly subsidy or fiscal measures, all amount to giving sandwich class families a subsidy to satisfy their housing needs on the private market, which creates additional demand and hence upward pressure on the prices in an already stretched and highly speculative market.
A ROCKETING price rise in the housing market is a real danger. The deputy chief executive of the Monetary Authority, Mr David Carse, recently stated that it is not yet the time to lift the 70 per cent ceiling on mortgages, as the total amount of mortgage loans increased by 14 per cent last year in spite of the ceiling, and showed a rapid rise over the last month.
The Government's preferred option is the low-interest loan, the ceiling of which is 20 per cent of the selling price of the flat, or $500,000, whichever is the lesser. A $2 million flat-buyer will therefore be entitled to a $400,000 loan, and the beneficiary will have to find the money for the remaining $1.6 million by himself.
However, a 25 per cent rise in flat prices will wipe out the effect of the loan, and the family will have to raise $2 million, even if it secures the $500,000 loan.
Not only is the scheme not cost-effective, it is not equitable either. A price increase in the property market will hurt those sandwich class families who are not able to benefit from this interim scheme. A thousand families per year in two years is onlya small number compared to the total number of sandwich class families.
Even by the Government's own definition of the sandwich class, this represents less than seven per cent of those who are in need of help. The point is, the sandwich class does not have a housing problem per se.
The problem is affordability. Other families do have a housing problem: those living in squats, in temporary housing areas, and the ''cage-people'' - not to mention those who are on the Housing Authority's waiting list for rental housing estates. They have much bigger, genuine housing problems. It would be much more cost-effective and equitable to spend the $2 billion on them.
The solution is simple. Instead of embarking on the interim measure, use the $2 billion to build sandwich class flats. Rough calculations show that around 7,000 500-600 square foot units could be built. They could be put up for pre-sale immediately.
The profit could be ploughed back into the other, more urgently required, areas of the public housing programme.
The solution is there, if only the Government has the will. Of course, these would-be beneficiaries would have to wait a little longer. But all will benefit.