Give money directly to help people buy or rent a home

PUBLISHED : Monday, 12 September, 2011, 12:00am
UPDATED : Monday, 12 September, 2011, 12:00am


Our government has two key responsibilities in housing: overall supply and housing for the needy. And its policies to meet these needs should be more market-driven.

In Hong Kong, the government is the sole supplier of 'new' land, and sets prices for converting existing non-residential land to residential use.

In the run-up to 1997, due to restrictions on land sales under the Sino-British agreement, prices escalated. But after 1997, forceful programmes to expand public housing supply exacerbated a cyclical downturn in the private housing market. Both before and after the handover, land supply fell short of demographic demand. Meanwhile, the Tung Chee-hwa administration's policies tried, in effect, to forcefully reduce the market share of private housing, and today's government uses its land supply control to influence prices.

It's clear that the government should only ensure steady land supply to meet demographic demand; its policies should remain market-neutral.

But if the government leaves prices to market forces, once home prices shoot up during a property upswing, what policies can help the 'sandwich class' who find themselves priced out of home ownership? Currently, many Hongkongers are calling for the revival of the Home Ownership Scheme. That, however, dispenses permanent benefits which are expensive and problem-prone when used to address a cyclical phenomenon.

The HOS is an example of welfarism. Eligibility is based on income levels at the time of application, but incomes are almost certain to rise later. Approved applicants then receive a benefit that historically was a discount of between 30 and 60 per cent on the value of a new medium-sized flat. As potential applicants have increased, with rising income disparity, only a small fraction would see their lots drawn.

The HOS, various interest-subsidised loan schemes, and other home ownership assistance offered - all discontinued after 2002-2003 - were not market-neutral. They were incentives, using public resources, to entice people to buy instead of rent. When taken up at the crest of a property cycle, they may land homebuyers with capital losses later.

More fundamentally, an HOS solution would leave untouched the mass deprivation of home ownership caused by impoverishment after our economic structure changed. Homes were much more widely affordable prior to the 1980s. But then factories moved north. Workers increasingly saw their incomes lag while home prices rose out of reach.

Thus, over the past three decades, gross domestic product has grown faster than has the median household income. The price of small and medium-sized flats has risen, yet the poor, relegated to public rental housing, could not benefit from that rise.

Meanwhile, the waiting list for rental housing lengthens and many live in cage homes and cubicles.

Home ownership should be available to lower-income earners, who are co-contributors to our growth. Instead of building public rental housing and HOS flats, the government should sell the land, and make money available to households for either renting or buying homes. The amount for each household would depend on need, that is, its income shortfall against the prevailing cost of meeting prescribed basic housing standards. Those standards can follow a sliding scale, to encourage upward mobility.

Existing public rental housing should be put up for rent or purchase, but at market rates. In all cases, to protect against interest rate volatility, long-term fixed-rate mortgages should be required.

Not only would such a system support home ownership in the event of cyclical price increases, by providing relief against income disparity, it cultivates greater contentment and social stability. It gives the poor valuable nest eggs - at no extra cost to public coffers.

James J. Lee writes as an independent commentator. For more details, see