The View

Hong Kong needs to think out of the box on rents

A radical solution to HK's housing woes is needed, and that means rent controls, but it might help if we had a popularly elected government

PUBLISHED : Monday, 28 July, 2014, 4:26am
UPDATED : Monday, 28 July, 2014, 4:26am

Irony and cynicism are not primary elements in Cantonese humour, but they seem to have been lost entirely in recent weeks by Cheung Kong (Holdings).

Tiny flats in its Mont Vert residential development in Tai Po measure just 177 square feet - barely double the size of an 80 sqft cell in Stanley Prison.

While micro flats aren't new to Hong Kong, Cheung Kong's versions arrived at a politically charged moment and represent a cruel metaphor for the property problems that beset the city.

And here is the punchline - there's a good chance of a higher standard of living as an inmate at Stanley Prison than as a resident in a tiny flat, according to one of my ex-convict friends who says incarceration is easier than struggling to make a living outside.

Inmates enjoy, at government expense, three decent meals each day, excellent medical care and access to an array of support services from charity organisations.

So distorted has our economy become from runaway property prices that these Hong Kong stories deserve their own tragic chapter in the bestselling series, Freakonomics.

On one hand, Cheung Kong chairman Li Ka-shing is so worried about social instability that he warned in a recent speech that "the howl of rage from polarisation and the crippling cost of welfare dependence is a toxic cocktail commingled to stall growth and foster discontent."

Then, he called on the government to introduce dynamic and flexible wealth redistribution policies to strike a balance between promoting equality and economic objectives.

Sadly, on the other hand, Cheung Kong flogs its flats as if they are performing a public service. The company's no-viewing restrictions over the flats may not be illegal, but they are shamelessly unethical, more worthy of a used car salesman than Hong Kong's leading corporate citizen.

While squeezing the last drop of profit from this project, many outside observers will be left wondering whether the corporation's actions are part of the root cause of the polarisation and instability about which its chairman complains?

Changing land policies across the territory will take too long to implement to have an immediate effect on closing the inequality gap and defusing discontent. They will also fail to adequately address problems in districts such as Wan Chai or Causeway Bay, even if they work longer term in the New Territories.

Rent control is the only immediate policy solution. Today, rent increases are based on the ultimate speculative activity - the best guess of what landlords believe they can get away with.

Rents have spiralled out of control, unhinged from any credible benchmark

So rents have spiralled out of control, unhinged from any credible benchmark. The result is great disruption to the Hong Kong way of life as entire neighbourhoods are decimated.

The most likely way for four people to enjoy dining at a cheap and cheerful, family-owned restaurant is to travel to Shenzhen. You can manage it there for 200 yuan (HK$251). Hong Kong's dining scene for people on a budget has been eviscerated by rapacious rentiers.

Reasonably priced dining has mutated into microwaveable, frozen flat boxes served at convenience stores. On a sweltering night in Wan Chai or Lan Kwai Fong you can consume your boxed meal while sharing the cool breeze pumped out by store refrigerators, with the entertainment provided by people standing next to you striking all manner of deals on their phones.

Before critics point out that rent controls create shortages and exacerbate scarcity, they should examine the effectiveness of modern applications.

For example, rent control on commercial premises in Santa Monica, California, has not diminished demand for and investment in real estate.

While the specifics of a Hong Kong-tailored rent control policy are beyond this column, Hong Kong surely has enough real estate specialists to be able to formulate and enforce district-by-district policies. Hong Kong's distorted property market requires distortive corrective measures.

Who, however, are we kidding? Rent control is too difficult to pass without the moral suasion and authority of a popularly elected government.

The Hong Kong government's core problem is its inability to exercise a mandate based on the people's collective will, because Hong Kong people are not allowed to voice their collective will at the ballot box. Thus the city remains at the mercy of a dysfunctional free market.

In many countries, housing is considered to be a strategic resource, if not a basic right. In Hong Kong, it has become the means of oppression.

Peter Guy is a financial writer and former international banker