Sorry, folks, this is one dance we're going to have to sit out
Housing is currently the greatest concern of our people.
Donald Tsang Yam-kuen,
Policy address, 2010
Donald is right. People complain more about property prices than about anything else these days. It is why he talked about housing first in his policy address, talked about it longer than anything else and offered more ideas to fix things.
And what was the response from the public?
Brrraaaatt ... A good loud raspberry of disapproval.
You could say it was his own fault. Most of the ideas were hardly new - increase land supply for development and, otherwise, strengthen this, review that, put a bit more money here, a bit more attention there, ho-hum.
And where he had new ideas, they were not particularly good ones. The 'My Home Purchase Scheme', for instance, the sop to the lobby that wants the Home Ownership Scheme restarted, will give 5,000 homeowners 50 per cent rent rebates after tenancies of up to five years.
It is hardly even a drop in the bucket. The stock of home ownership flats alone is over 300,000. But the worst feature of this idea is that it preserves the lottery nature of the HOS programme - Win a flat. If you pull the right card out of this deck you get a great deal on your home. If you pull the wrong one you help pay for someone else's great deal.
It makes for good show and lots of photo opportunities when the winners win, which is wonderful for politicians who need praise. But only the most conniving sort of public relations shill could call this a housing policy.
And yet I am not going to join the boo chorus directed at Donald. The 'My Home' scheme I put down to the fact that he could not entirely tell the HOS lobby to go find itself a very warm place. A lot of people support the lobby, some of them influential.
Politicians have to make these sacrifices of principle from time to time. I understand. Donald kept his sacrifice a small and token one, 5,000 flats only.
But the real reason I won't boo is that he is powerless to do anything about high housing prices anyway. Our government lost that power in 1983 when it abandoned independent monetary policy and adopted a peg against the US dollar. Donald was only a junior civil servant at the time. It wasn't his call.
Time to be a repetitious bore again. The real culprit here is not the evil speculator, developer, landlord or even misguided bureaucrat but the very low interest rates we have at present.
We have them because that peg to the US dollar dictates our interest rates and, whilst they may be appropriate to the US, which suffers from a pronounced housing slump at the moment, we in Hong Kong are decidedly out of synch with the US property cycle.
The chart tells the story. We had high interest rates with the peak of the property boom in 1997 and low rates with the bottom of the property slump in 2003, which in both cases was entirely appropriate. But now we have a roaring property market and rock bottom interest rates. That's the wrong way round.
No, I am not going to call for abolition of the peg. I shudder to think what some of our politicians might do with an independent monetary policy. Let's keep the peg. It's a bad system but all others for Hong Kong are likely much worse.
No, I think there is not much that Donald can really do to make things better. We shall just have to sit it out.
But there are some things he can do to make things worse and, unfortunately, he has done them.
The most obvious is his special loan guarantee scheme, which has committed us over the last year alone to guarantees of HK$97 billion worth of the debt of small enterprises that have met the scheme's requirement of being in financial trouble.
Aside from being a rotten idea on its own merits (let's help losers lose more with public money), it contributes to pushing Hong Kong's interest rates down even further, which only helps push property prices further up, just when this is the last thing we need.
Donald, if you feel compelled to make gestures of help, make them trivial ones like that 'My Home' scheme, could you, please? You do more damage than you know when you play with financial affairs.