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  • Sep 20, 2014
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Monitor
PUBLISHED : Friday, 18 January, 2013, 12:00am
UPDATED : Friday, 18 January, 2013, 5:27am

Quicker way to solve housing problem than a building binge

The government would be better off creating affordable rental flats for the poor and putting a tax on vacant investment properties

Yesterday Monitor argued that Chief Executive Leung Chun-ying's plan to double the number of homes built in Hong Kong over the next five years is likely to backfire.

Given the three-year lead time on developments, I warned that the extra housing would reach the market just as interest rates were going up and the property prices turning down.

As a result, there is a real danger that Leung's well-meaning housing policy will transform what would otherwise be a normal cyclical downturn in the property market into a deep and protracted slump.

Since then several readers have taken me to task. "That's all very clever," they said (or words to that effect). "But it's too easy just to sit there and criticise CY. If you think you've got a better idea, tell us what would you do in his shoes."

Fair enough.

The first thing I would have done is to make sure I understood what problem I was trying to deal with.

Clearly CY thought he had done that.

In his policy address on Wednesday he blamed "wrangles over land use and infrastructure projects" for "leading to sluggish land development and housing shortage".

"Shortage in the supply of housing has pushed up property prices and rental substantially," he said. "Many families have to move into smaller or older flats, or even factory buildings. Cramped living space in cage homes, cubicle apartments and subdivided flats has become the reluctant choice for tens of thousands."

So the core problem would appear to be a shortage of decent accommodation.

But the government's own figures indicate there is no housing shortage in Hong Kong. According to the latest census, there were just short of 2.37 million households in Hong Kong in 2011, a number that has been growing by 1.2 per cent a year.

And the government's latest Monthly Digest of Statistics says Hong Kong has a housing stock of 2.64 million homes.

That means the city has a surplus of around 240,000 housing units.

Some of these won't be fit for habitation. But even so, it is clear there must be many properties sitting empty. So if we are primarily concerned with providing decent accommodation for the city's population, before embarking on another major construction binge we ought to make sure we are making the best and most efficient use of the housing stock we already have.

But housing people isn't CY's only concern. He is also worried by the high cost of buying a home.

"I believe that home ownership by the middle class is crucial to social stability," he said on Wednesday, promising that the government will assist middle-income families to buy their own homes.

The high cost of buying a home in Hong Kong is a different problem - although Leung's two concerns are related.

Clearly home-ownership isn't really crucial to social stability. Germany, for example, has an ownership rate of around 42 per cent, 10 percentage points lower than Hong Kong, yet middle-class Germans are not rioting in the streets in protest.

But Hongkongers regard buying a home not as acquiring a place to live so much as making an investment they expect to generate handsome capital gains in the future.

This explains why so many flats are sitting empty. They have been bought not as homes but as capital investments. With yields so low, the owners can't even be bothered to rent them out.

At the same time, the people who complain about unaffordable flat prices are aggrieved not because they are deprived of housing, but because they are worried they will miss out on a lucrative investment opportunity.

Seen from this perspective, it makes little sense for the government to build flats for sale at subsidised prices to private buyers. The resources would be better used building affordable rental accommodation for the poor.

And in the meantime, if the government wants both to increase the supply of available housing and to bring down prices, it should impose a punitive tax on investment properties that are left vacant, as this column has argued before.

That would provide an incentive to owners either to rent them out, which would lower rents, or to sell them, which would bring down prices.

What's more, the policy would bear fruit in the short term, rather than in two to three years time, which means it could even moderate the effect of the cyclical downturn when it comes, not exaggerate the impact like CY's building binge.

tom.holland@scmp.com

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This article is now closed to comments

gkovacic
Very poor analysis. Claiming HK has a surplus of around 240,000 housing units because there are 2.37 million households and a housing stock of 2.64 million homes assumes all the housing units are equal and all the household sizes are equal. Clearly not the case. The # of suitable housing units in HK should be defined as those with minimum 1,000 net square feet. Anything less than that is not suitable for a household defined as a family of 3+. Get into the breakdown of the types of housing units and types of households and that will likely tell you there are too many small flats in Hong Kong which is distorting supply as households are forced to squeeze into small flats.
whymak
Tom's analysis is not poor as you've impolitely alluded to here. He raises quite a few good talking points for brainstorming. So are you too in this interesting conversation.
maecheung
Tom, you hit the nail right on this time about the mentality of HK home buyers and especially the use of punitive tax. I never believe the government should subsidized her citizens to buy flats for investment and even as homes. As you suggested, the resources would be better used building affordable rental accommodation for the poor.
Bringing down home prices, and rental cost to affordable level is the Key!
HK_eh!
Tom, you hit it on the head with this article. Well done.
not everyone needs to own, and those that own but do not rent can be taxed.
toppan
good article
Greenwash
Agree with Tom Holland completely. The government should tax empty flats, which will make more flats available and we can all watch rents come down. This will reduce the attractiveness of buying until house prices fall a bit as well.
I would like to add one idea. Reduce or eliminate restrictions on combining small flats. Many HK families want a larger flat but flats over 1000 sq feet sell at a premium. Allowing owners to combine flats will reduce the price per square foot differential and make mid-size flats (1000 to 1500 sq feet) a bit more affordable.
Both of these measures would of course, hurt the property developers, who also own many empty flats, which is why they won't happen. CY doesn't want to offend anyone, and thus he will get little accomplished.
scmp04
To the comment about the reasons that would be homeowners are aggresived not because of the non-avialability of housing, but more on missing out on a lucrative investment opportunity:
EXACTLY. HIT THE NAIL ON THE HEAD.
It feels similar to those who rioted in the Apple stores in China, when they couldnt get their hands on a new iPhone, last year. They werent going to use the iPhone, they wanted to flip it in the grey market.
jandajel
Perceived lucrative investment opportunity!
honkiepanky
On average, a Hong Kong resident has 140 square feet of living space available to them, a quantity that is an order of magnitude lower than those enjoyed by the residents of cities with similar levels of income such as London or even New York.
So sure, it's all about missing out on investment opportunities. Right.
whymak
All points you make here are plausible. But are they doable?
At the root of the problem is Hong Kongers' irrational expectation that real estate has the best store of value, one based solely on past home appreciation. Only fools believe something would grow to the sky. That’s why Hong Kongers acceptance low rental yield.
Changing investment attitude and behavior takes decades.
Another reason against your good arguments is it is much easier to concentrate spending into few major construction projects instead of upgrading scattered properties into affordable flats for middle and lower income folks. But creating the bureaucracy to administer rental properties that won't continuously hemorrhage public funds presents another uncertainty.
Germany should not compared with other Western countries, let alone Hong Kong.
Unlike France or the UK, Germany doesn’t have wildcat strikes. When IG Metall establishes some guideline, it sets a constraint for other labor contract negotiations. In Germany, firms have labor representatives on the board, which is not you find elsewhere.
Whereas in Hong Kong, we have a sizable population of self-hate nihilists, whose sole interest is to subvert China and our one country two systems, Germans are disciplined enough to resolve their regional differences for the interest of the nation, their federal system notwithstanding

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