Donald Tsang

Forget stray cats, Mr Tsang, slap a tax on HK's empty flats

PUBLISHED : Friday, 14 October, 2011, 12:00am
UPDATED : Friday, 14 October, 2011, 12:00am


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Donald Tsang Yam-kuen said some mighty curious things in his policy address on Wednesday.

I'm not talking about his promise to 'examine with relevant groups ways to facilitate the adoption of stray cats' - although that was pretty strange. No, I mean the astonishing figures Tsang gave right at the start of his speech when he was talking about Hong Kong's housing stock.

The numbers certainly made Jake van der Kamp sit up and pay attention. He devoted a whole column in yesterday's paper to them. I normally wouldn't want to pick up on Jake's sloppy seconds, but Tsang's figures were remarkable enough to justify a second look.

Tsang said there were currently 2.35 million households in Hong Kong and that the city's housing stock consisted of 2.6 million 'residential units'. That would mean Hong Kong has 250,000 more homes than the city needs.

Actually, when you tot up all the latest data, the surplus comes to 228,000 flats. Even so, you still end up wondering why Hong Kong is suffering from such an acute housing shortage.

Over the last five years, the number of households has been growing by an average 27,400 a year. So if all building halted tomorrow, Hong Kong would have enough spare homes to meet demand for the next eight years.

And if building and demolitions were to continue at the rate seen over the last five years, Hong Kong would have enough empty flats to meet its housing demand for the next 48 years without stepping up the rate of construction.

Even if you use the government's official figure for the number of vacant flats - 51,534 at the end of last year - the city would still have enough supply to house everyone without overcrowding for the next decade.

So again, you have wonder why the government is resuming the building programme it suspended back in 2002 if the housing market has so much spare capacity.

The answer, of course, is not that Hong Kong is short on homes, but that it is short on homes that people can afford to live in.

This, however, begs another question. Normally if supply exceeds demand, the price falls until it hits the market clearing price. So why aren't Hong Kong flats cheaper?

The reason is that in Hong Kong, apartments are not just homes. Indeed, for many owners they are not even homes; they are investments.

Flats are regarded as stores of value and they are expected to generate handsome capital gains over time. Buying a flat is seen as the springboard to wealth and security. And if you can afford it, you buy more than one.

This attitude is perfectly understandable. After all, the government has for decades deliberately restricted the supply of building land in order to support property prices.

And despite the unfortunate six-year slump between 1997 and 2003, over the last quarter-century, prices have risen eightfold.

Over the last few years, buying property as an investment has made excellent sense. The return on bank deposits has been negative in real terms and the stock market has been far too volatile to be the main store of value for your precious savings. On the other hand, the property market has flourished, climbing 43 per cent since the end of 2008.

With those sorts of gains, plenty of buyers - both from Hong Kong and the mainland - don't even bother with all the hassle of renting out their spare flats. They just let them sit empty, accumulating value.

This is wonderful for the owners, but it's causing big problems for everyone else. Hong Kong has plenty of flats, but in effect they've been taken out of the housing market by owners who see them not as homes but as investments.

The result is a supply squeeze, which has pushed apartments well beyond the means of many people who actually want to buy a home in order to live in it, hence the government's decision to resume building subsidised flats for sale to middle-income families.

But there is an easier - and certainly much faster - way to increase the supply of affordable housing. The government should slap a punitive tax on vacant apartments.

Determining whether a property is really uninhabited would be tricky but working out a way of doing this shouldn't be beyond the combined brain power of the city's 160,000 civil servants.

They already quiz building managers. And they could easily use water and electricity consumption data as a signal. If these indicate that a flat has sat empty for a protracted period, the government should hit the owner with a penalty rates demand.

Instead of charging rates at 5 per cent of the likely rental income - which on a HK$5 million flat works out at around HK$9,000 a year - the government could charge, say, 2 per cent of the property's value, rising to 5 per cent if the flat remains empty.

A rates bill of HK$250,000 a year should be enough to persuade most owners of vacant investment properties either to sell their flats or to rent them out pretty sharpish.

Either way, the new supply coming on to the market would soon bring down property prices and rents, making homes more affordable for the city's inhabitants.

At the very least, introducing a penalty tax on vacant properties at this time will improve affordability over the five years it will take for the government's new subsidised flats to reach the market in 2016.

If Tsang's figures are correct, Hong Kong has an adequate housing stock as it is. The city just needs to use it more efficiently.

Perhaps the chief executive should be putting a little less imagination into finding ways of housing Hong Kong's stray cats and a little more into housing its people.