Jake's View
PUBLISHED : Tuesday, 08 July, 2014, 12:45am
UPDATED : Tuesday, 08 July, 2014, 12:45am

Housing Authority must raise public housing rents or run out of money

Housing Authority will run out of money if it continues building flats without raising rents that are already among the lowest in urban world

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.
 

Professor Raymond So Wai-man, who chairs the Housing Authority's finance committee, said it may need to ask for more funding as its coffers will have dwindled to HK$28.2 billion by 2017-18.

SCMP City

What an irony that a government corporation set up to help the poor should draw a poverty line at HK$28.2 billion.

But while it still has about HK$68 billion in liquid assets at the moment, the Housing Authority will inevitably run through the money if it continues to stick its head in the sand.

The facts are simple. Taking into account the regular rent rebates of recent years, the average HA flat rents for little more than HK$1,200 a month. In a city that is a byword for high-priced housing, a third of the population lives in some of the cheapest urban accommodation on earth. Another big irony.

It's not enough to pay for repairs or even the cost of collecting rent. The HA expects to run a deficit of HK$1.66 billion on rental housing operations this year.

At one time this did not matter. Income from public-sale housing, the Home Ownership Scheme, covered the cost of building rental flats. And when HOS was finally wound down in 2004, the flotation of the HA commercial portfolio as the Link Reit made up the difference.

But now things are changed. A new HOS programme has got off to a slow start. Even at full steam it will bring in little revenue as construction costs are taking almost all the money. And yet the government wants the HA to build 20,000 rental flats a year, flats that have also gone way up in construction cost.

The bar chart shows what the HA forecasts this will do to its finances up to March 2018 and the trend will not change in later years. Remember in this context that the HA is already hugely subsidised with free land, the biggest treasure we have in the public purse.

What to do?

Quite simple, say I. We already pay public housing tenants to live in public housing. They don't pay us. The HA runs a loss on public housing operations. These rents must go up.

The HA did finally decide on Friday to raise rents by 10 per cent but this means nothing when you talk of an average base of HK$1,200. These rents can go much higher.

And the tenants will have little cause to plead poverty. As the second chart shows, wages have risen quite notably over the last seven years while public housing rents have actually declined, even without taking the persistent rebates into account.

In fact a 50 per cent increase in rents would only put them back where they were relative to wages from 1998 to 2007.

That should be immediate. And when it is done we should tack another 50 per cent on the rent as a purchase prepayment. Buy your flat off the HA or lose that extra 50 per cent.

It's the only way to get the HA's long-term finances back in shape.

But it will require the HA to pull its head out of the sand. Oh well, another wasted column.

jake.vanderkamp@scmp.com

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