HOUSING POLICY, under review by the government, is at a crossroads. The existing system, comprising mainly public rental housing (PRH), the Home Ownership Scheme (HOS) and subsidised home purchase loans, is inefficient in the use of resources.
By tailoring aid to actual need, billions of dollars could be saved, helping to resolve the budget deficit and fuel a recovery.
Two ways in which housing resources are mismatched and could be better spent have been well publicised. Instances of major defects in subsidised housing construction suggest that the private sector could do a better job. There are also cases of premium-land allocation for subsidised housing that could be located cheaper elsewhere. Mismatch between land value and land use inevitably arises when the government, rather than the market, decides the allocation.
Another resource mismatch occurs because for any particular housing benefit, all households below a certain income limit currently receive the same quantity of aid. Actual need differs widely between the recipient household that is just $1 short of being able to afford private housing, to the household that needs every dollar of the benefit.
Better-off families can afford larger flats and receive not just equal, but greater benefits under the HOS and subsidised loan schemes. Taking the HOS as an example, discounts have historically equalled 30 per cent to 60 per cent of the price of a flat.
Another mismatch surfaced when housing costs fell sharply. Mortgage costs fell by about 70 per cent. Meanwhile, qualifying income limits for housing benefits remained unchanged or even increased. As a result, many families could afford private housing and yet received aid. It impeded the shift of demand to private sector housing as prices fell. The HOS price discount further undercut market prices. A depressed property market, in turn, affected the various types of property-related revenue to the government. The Budget was hit on both the cost side and revenue side.