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Jake's View
PUBLISHED : Thursday, 01 August, 2013, 12:00am
UPDATED : Thursday, 01 August, 2013, 5:34am

Public housing plan is a case of too much, too late

Given a chance, developers will build a surplus of homes. Adding more government-subsidised flats to the mix only floods the market further

"We have come to some consensus as to the future direction. Given the current demand, the government should take a more active role in providing public housing."

Anthony Cheung Bing-leung
Housing Secretary,
SCMP, July 26



There are many questionable assumptions underlying this statement but I shall focus on one. It is that normal market forces have not been up to the job of providing people with decent housing, and thus government must do it.

It ignores, first of all, that government always plays the key role in housing, does so in every city on earth and has done so throughout history. Government controls the use of land, regulates building locations and establishes building codes. The appearance of any town is a direct reflection of government policies.

It also ignores the fact that the biggest restraint on private developers is getting building permission from government. Left to their own devices, developers will by nature always overbuild, and do it massively.

Taken as a group, it is not entirely false to compare them to pigs, as many of their critics do. Like Wilbur, they cannot control their appetites. Those who pull back from the trough are soon replaced by hungrier ones. Only financial straits and shortage of developable land stop them.

This is relevant in our case because our developers have been complaining for years that government has starved them by choking the supply of land.

It may be their own fault. This newspaper, for one, has in the past published photographs of competing developers leaning over to each other at land auctions for a quick whisper and a resulting "joint venture" bid.

Partly as a result, the Lands Department instituted an "application system" whereby auctions are only triggered if a developer bids more than a reserve price held secret by the department. It may have kept auction prices up, but it has also significantly brought down the amount of land auctioned.

Thus while I entirely agree with Mr Cheung that government needs to take an active role in housing, I do not see how it follows that this role must be one of direct government provision of housing. You will do just as well to turn on the land tap again, sir.

In fact, you will probably do better that way. One of the sad truths of government intervention in any sector of the economy is that it tends to be approved at the period of worst strain, and then continue unnecessarily to make the subsequent adjustment greater.

It has certainly proved that way in Hong Kong. Reacting to complaints in the mid-1990s about rising housing prices, then-governor Chris Patten, a great democrat but an administrator of doubtful competence, authorised a big push on housing. It was later endorsed by his successor, Tung Chee-hwa.

These things take time to come to fruition and, as the chart shows, this one did in 2001, almost four years after housing prices had already begun to tumble. It made that property crash much worse and extended it all the way to mid-2003.

I think the correction would have happened even without Patten's rushing in where angels fear to tread, but it would not have been so pronounced or long-lasting. Financial straits would have slowed down private developers at an earlier stage. Government is not subject to such financial straits.

However, we are now up in our ratio of public to private housing supply - from 50/50 to 60/40. Here we go again, with public rental housing at an average of HK$1,200 a month, which tells employers they can safely keep wages down, and a capital gain lottery that goes by the name of public sale housing.

You left us plenty of your company, Chris.



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This article is now closed to comments

Jake, I am afraid I will have to disagree with the general premise of this article. As long as there our fellow citizen are living in subdivided flats and/or cage houses, there will be an unquestionable need for public subsidized housing. As a society, we must vigorously fight against such inhumane conditions until such are permanently eradicated, much like the polio virus. The fact that there exists a three year waiting period for public housing applicants is an insult to all of us. In order to minimize the burden on the public purse, we must concurrently reform our immigration policies to only allow immigrants capable of financial sustaining themselves.
Regarding the severity of the property crash after 1997, the crash actually returned to a healthy, non-bubble level. Based on historical rates of appreciation, this healthy, non-bubble level was reached around 2003 when the index was around 40. For 2013, a healthy, non-bubble level would be approximately 75-80, based on the chart of the article above. The current price level is probably closer to 120-130.
On the note regarding employers keeping wages down, this can easily be rectified through incrementally increasing the minimum wage and expediently implementing standard working hours with overtime pay (at rates higher than the standard work rate). Standard working hours can also lead to an increase in employment opportunities given that many workers who currently work 50 to 60 hours a week would probably work closer to 40 hours a week due to the cost of overtime pay. The minimum wage would need to be adjusted to protect the income level of these workers despite the cut in working hours.
There is no quick solution to raising people out of poverty, but a slow and gradual increase—to ameliorate shocks to the economy—in the minimum wage and legislation of overtime pay will help to reign in the culture of exploitation that contributes to wage disparity and wealth inequality.
Is more public housing really the answer? Trouble with public housing is that no one ever leaves, which creates no room for new people and thus the need for you guessed it, more public housing. Flats are handed down from generation to generation, while the cars in the car park go from used toyotas to brand new mercedes as the younger does better than their parents. You must enforce rules requiring ppl to move out of public housing when their economic condition allows, or frankly just making public housing have a time limit. Otherwise it just becomes a massive wealth transfer from middle class to poor, because of course our beloved tycoons pay no tax dividends or capital gains.
Second, remove the incentive of apartment hoarding by increasing property taxes (see Japan) and additional duty on additional homes. This will also increase supply of flats and make them more affordable.
Lastly, good quality affordable education inside of a regulated capitalist system has been demonstrated to be the best way to move large numbers of people out of poverty. Gov, please focus here!
Agree! Your point about 'to only allow immigrants capable of financial sustaining themselves' is the one that the government needs to take seriously... otherwise the supply can never meet the demand. On that note, Hong Kong really needs a 'leader' who can forge a strong population policy that helps this tiny city grow sustainably in all aspects. Many of our public services and facilities are close to breaking points!
Forget blaming politics. Just housing alone makes Hong Kong not an easy place to run (govern). Not even in the hand of a professional governor Chris Patten. Tung learned this lesson well and soon especially being an outsider in everything except in shipping. What is so challenging is the extraordinary people for whoever’s leadership must fall upon to lead (govern). Hong Kong people of the like we see among the property developers and their followers have made what Hong Kong is. No Patten, Tung and Tsang had made a difference. After a year largely engaging in political struggles, CY Leung still may not be in any better shape as his predecessors. It will take fortitude for him to push the right button to halt the business as usual in Hong Kong – changing from a backward colonial city to a modern city.
By the way, what is with the graph? Why does it -conveniently- stop at 2007?

There is perfectly good data available for the period 2008-present. I suppose it wasn't conducive to the argument to show that the house price index is well above its 2001/2 peak?
Well said. If only Mr van der Kamp had indeed accompanied his call for more land supply and building less public housing with some of the fiscal and regulatory measures you mention, he might have been onto something.

Instead, his simplistic call for less public housing and more land supply, after which we just leave it all to the market is just appalling, both morally (175,000 people in subdivided flats), and rationally.
I suspect that Mr van der Kamp erroneously implies that Gov Chris Patten was the mastermind and driving force behind the Home Ownership Scheme (HOS) and variants of it.

This is of course completely wrong. Under Patten the HOS somewhat expanded and the Sandwich variant came about. But HOS predates the Patten era by some two decades and was already very sizeable in the 1980s, when of course it was just the Hong Kong variant of the Thatcherite Right to Buy policies in the UK.

But recently Mr van der Kamp has displayed an increasing disconnect from reality and facts, so I am sure the need for a bit of historic revisionism won't stop him from continuing his favourite past time: snaring at government officials, even if this is a government long gone.
Let's face to: the HK govt is totally incompetent.


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