It all comes down to property market
Despite getting a healthy dose of benefits last week from the financial secretary, the middle class's abiding interest in the budget is how it will affect the property market, especially with an uncertain outlook in Europe and the US. Since high prices have moderated a little, and some observers predict the trend to continue, the government has decided to leave well enough alone for the time being. Instead it will focus on increasing land supply to reduce the underlying pressure on prices.
John Tsang Chun-wah envisages providing enough land over the next year to build nearly 30,000 flats - 5,000 less than targeted last year. He has left no stone unturned to find the land, but since this is a free market that depends on a handful of dominant developers willing to make sufficiently high bids, there remains a question about whether the target is achievable. After all, half of the 47 government sites on the auction application list will be rolled over from the previous year. And to reach the 30,000 target Tsang is also relying on projects by the MTR Corporation and the Urban Renewal Authority, as well as private redevelopments, and the timing of development will be up to them.
The government is to be commended for splitting some parcels into smaller plots to make them affordable to a wider field of developers and, thus, encourage the construction of smaller units for the less well off. But that is no guarantee. Prices in the coming year will remain subject to economic uncertainty and the ebb and flow of hot money. In the long run, Tsang said the government was seeking to ensure that land supply would not be affected by economic cycles or property market fluctuations. To this end, officials have undertaken land-use studies and reviews of more than 10,000 hectares of potential housing sites. It does not follow, however, that this will make flats affordable. The government treads a fine line between the affordability gap for first-time homebuyers - the most visible symbol of a growing wealth gap - and the interests of home owners for whom property is their main investment and store of wealth. Indeed, the government may be more fearful of public wrath should a policy blunder cause property prices to fall than an outcry over higher unemployment.
As a result, the government remains part of the problem rather than the solution because its land supply mechanism erects barriers to entry and helps keeps prices high. If it really wants to make property more affordable, it could consider introducing more competition to the market by lowering the barriers to entry, such as heavy up-front fees that participants must pay. Sadly, so long as the government lacks the political stomach for broadening the city's narrow tax base, it will remain overly dependent on volatile revenue from high land premiums, which get reflected in high flat prices.