Key to the door
The Labour Day protests in Macau showed that even booming economies need to cope with the rich-poor gap. Hong Kong, where the number of households earning less than HK$6,000 a month increased 64 per cent between 1996 and last year, also has to face up to the issue.
Confronted with spiralling property prices, Macau's chief executive, Edmund Ho Hau-wah, announced on April 3 a package of measures to help lower-income people, especially with home ownership. He noted that the experiences of Singapore and Hong Kong had been considered.
There is no better way to help residents of a crowded city than to assist them in owning their home. In this, Singapore has succeeded remarkably well. Practically its entire low- and middle-income classes, 87 per cent of the population, live in flats built and run by the government. Of these, 80 per cent own their flats. Singaporeans are assured of affordable housing for life, and can sell their flats or release the equity in them through a reverse mortgage after they retire. Social security for an ageing population need not worry Singapore.
The home ownership programme, begun in 1964, has been the main nation-building tool of the government. With hardly a protest even in difficult times, social coherence is strong, notwithstanding a fairly wide wealth gap.
All this has not come cheaply. To keep flats affordable, the government sells them at subsidised prices, and offers subsidised loans. It maintains the estates in an attractive state. Mandatory contributions to the Central Provident Fund, a principal financing tool for housing, were once 50 per cent of wages (it is now 33 per cent). Moreover, for the grass roots and middle classes, there is simply no affordable alternative.
Also, the aid is not structured for efficiency, reflecting perhaps its paternalistic, nation-building heritage. All households with income below the stipulated ceiling receive full benefit. This implies a roughly 50 per cent oversubsidy than if aid ranged from, say, just S$1 (HK$5.13) for a household earning S$1 less than the ceiling level, to full benefit for those with no income. Also, applicants must meet the income criterion only once - at the time of application, even though incomes usually rise over time.
Public housing in Hong Kong is also structured on an income ceiling. The Home Ownership Scheme, launched in 1978, offered discounts of 30 to 60 per cent from market prices on government-built flats for sale.
Unlike Singapore, however, Hong Kong also has a private housing sector catering for 60 per cent of the population, which is a major part of the economy. Because the government does not face competition, public housing is seen as less efficient than private housing in terms of cost, land use, quality and image. It is, however, oversubsidised using the income ceiling criterion mentioned previously, when compared with the private housing market. A greater threat to the market occurs during cyclical downturns, when the eligible income ceiling is slow to be lowered in step with falling property prices. Would-be patrons of the private housing sector are siphoned off. Worse, due to construction time lags, the rise in public housing output at the peak of the property cycle then comes on stream as the market declines, exacerbating the slump. This occurred after the Asian financial crisis.
Since 2003, all help for home ownership in Hong Kong has been stopped, except for the resumed sale of ageing HOS stock - in periodical batches, to avoid unsettling the mass housing market, where recovery has remained lacklustre.
Mr Ho, on April 3, mainly pledged large increases in construction of subsidised housing, especially those for sale. One is reminded of the Hong Kong government's initiative, at the peak of the last cycle, to build 85,000 flats and attain 70 per cent home ownership, and its outcome. Macau should therefore tread carefully, unless it plans to provide universal public housing, as Singapore does.
Macau's initiative is advanced in at least one respect. The government will build and rent flats to young people who can buy them later. Rents will be set at an affordable percentage of tenants' incomes, with the government making up the shortfall. This would eliminate the oversubsidies caused by an income ceiling.
Hong Kong can let its less-well-off residents share in long-term property appreciation through home ownership by putting all existing public housing up for rent or sale at market rents and prices, and expanding the Comprehensive Social Security Assistance scheme so it can be used to rent or buy homes. To further address the wealth gap, the CSSA supplement should be indexed not merely to consumer prices but to income growth. The socially guaranteed standard of living in the CSSA, plus a worker's own wages, should follow a scale that rewards self-advancement.
