Jake's View
PUBLISHED : Thursday, 23 May, 2013, 12:00am
UPDATED : Thursday, 23 May, 2013, 4:27am

Ferry subsidies to push rents up further

Operators should be allowed to raise fares, instead of receiving handouts; civil servants' involvement in business benefits capitalists

BIO

Jake van der Kamp is a native of the Netherlands, a Canadian citizen, and a longtime Hong Kong resident. He started as a South China Morning Post business reporter in 1978, soon made a career change to investment analyst and returned to the newspaper in 1998 as a financial columnist.
 

The government plans to spend almost HK$610 million adding space for shops to three Central ferry piers as a form of cross-subsidy to help boat operators stay afloat in the long term.

SCMP, May 21

I am a former resident of Cheung Chau. We moved there in the early 1980s as a low-rent refuge from a bear market so severe that even some stockbrokers, as I was then, had trouble affording Mid-Levels rents.

I loved the place, still do, but the kids reached school age, the bear market turned into one of the most magnificent bull markets of Hong Kong's history, and we moved back to town. Along the way I reckon the time I spent on the Cheung Chau ferry could be measured in months.

It was a comfortable ride on the big slow ferries of that time. In the morning I picked up breakfast at any of a number of stalls on the waterfront and then enjoyed a quiet hour riding into Central, during which I could get more real work out of the way than in any hour in the office. The evening return trip was an opportunity to unwind from the strains of the day.

I am in favour of continuing to make it a worthwhile and affordable experience for people to reside on Cheung Chau but I doubt that adding three floors to the top of the existing outlying islands ferry piers will do this for them.

Superficially, of course, it should do so. The extra space will be turned over to the ferry companies at a low government rent and they in turn will charge higher rents to shop tenants. That should make up for any increase in fares, which the ferry companies would then be refused. Passengers will effectively be subsidised.

And Cheung Chau landlords and land speculators will know it, too. Accommodation is cheaper on the outlying islands than it is in town because of the inconvenience and cost of commuting there. Lower the cost of commuting to the outlying islands and you just invite an increase in rents. Passenger subsidies will in effect become subsidies to property owners.

It is hard to see this in practice, of course. An instant win for commuters is easily visible when ferry companies are refused fare increases or even made to drop their fares but the creeping effect on accommodation costs is not. Yet it is just as certain. That's the way an economy works. Push it in here and it bulges out there. As in physics, to every action there is an equal and opposite reaction.

It is already the phenomenon we see in public housing. Why are restaurant workers paid so poorly?

Answer: Because the rent for their public housing flats is, on average, only HK$1,200 a month, and employers know it. Why pay them more when government has already effectively done it? Housing subsidies thus become employer subsidies. Push it in here and it bulges out there.

We also see it in the Work Incentive Transport Subsidy Scheme, a HK$600 per month subsidy to anyone in full-time employment with income below a set schedule of thresholds.

Thank you, says the employer. If you pay my employees more, I won't have to. In effect, the scheme imposes a maximum wage barrier. A worker who is already paid at the threshold level will decline any wage increase unless it is more than HK$600 and compensates him for losing the subsidy. Wage increments, however, are rarely HK$600 a month at the low income level.

The silliness goes even further in the scheme to add more floors to the ferry piers. Besides the fact that the cost is likely to be higher than building new retail space, our report talks of art galleries as mooted tenants.

Art galleries? Have the civil servants who came up with this idea ever walked past these piers? Fish ball stalls would be high rent there.

And if a transport subsidy must come through the complicated route of net rental margins on new retail space, what law says this space must be constructed on a ferry pier rather than in some natural retail location?

It's simple. If a ferry operation is not viable with fares at their current level then let the ferry company raise them.

jake.vanderkamp@scmp.com

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