Hong Kong's public housing model is on shaky ground

Lau Ping Cheung says sales would raise revenue and shorten waiting lists

PUBLISHED : Thursday, 23 April, 2015, 12:19pm
UPDATED : Thursday, 23 April, 2015, 12:19pm

Despite their similar nature, there is a reason Hong Kong's public housing programme is less sustainable than its Singaporean counterpart. Singapore's one million Housing and Development Board flats have all been sold to qualified applicants, generating revenue to sustain its long-term public housing initiatives, lessening the likelihood of speculation, while increasing social stability and homeowners' sense of belonging.

Contrast that with Hong Kong. Each of the city's 744,000 public rental housing units under the Housing Authority cost about HK$1.2 million to build, at today's prices, while their land premium - estimated at HK$1 million per unit - is absorbed by the government. There is no way these amounts can be covered by the HK$1,550 average monthly rent per flat. If we add another HK$2,000 to HK$3,000 to cover annual maintenance and management expenses per flat, the total hidden cost of the current stock of public rental units easily hits HK$1.6 trillion-plus at today's market value.

Guess who's footing the bill? Taxpayers. Furthermore, of the current stock of 420,000 Home Ownership Scheme flats and other similar subsidised flats, only around 20 per cent of owners have paid their subsidised land premiums, leaving some 340,000 HOS flats where premiums are unpaid. This means the Housing Authority is owed some HK$340 billion in land premium revenue, assuming an average of HK$1 million for each redemption. This deprives the second-hand market of these flats, given that such apartments can't be sold or rented out in the open market.

Thus, it's clear that Hong Kong's current public housing programme is built on an unsustainable financial model, while also failing to instil a sense of belonging.

Unquestionably, the public housing programme has helped maintain social stability while enabling nearly half the population to build up significant savings and wealth. Yet, it is time for the programme to be revamped to ensure its sustainability and fairness, particularly as huge sums of public money are involved.

As outlined in the latest "Long Term Housing Strategy" report, 480,000 housing units are needed in the next 10 years, of which 60 per cent will be public housing - 90,000 HOS and 200,000 public rental housing units. The government should increase the proportion of HOS flats to public rental units, and target qualified "green form" applicants - public rental housing tenants where the entire household is ready to move out - to buy HOS flats. As a result, their public rental housing units would be available, generating revenue to sustain the public programme without reducing supply.

Selling new public rental housing blocks instead of renting them - again targeting qualified green form applicants - could also bring in revenue and free up more public units for the 260,000 applicants currently on the waiting list.

Meanwhile, the government could seek to collect the HK$340 billion in outstanding land premiums by allowing HOS flat owners to pay by instalments, generating revenue while increasing supply of these flats in the market.

An alternative may be to start a scheme similar to the Private Sector Participation Scheme, introduced in 1977, to fast-track housing construction, under which private companies were invited to build subsidised flats.

Research in 2000 - two years before the scheme ended - showed that such flats were 40 per cent less expensive and 20 per cent quicker to build than the Housing Authority's HOS units, as well as being much more efficient in floor area usage. The quality was more or less the same.

It's also important for the Housing Authority to step up preventive measures against abuse of public rental housing, charge well-off tenants full market rents, remove tenants whose income levels and assets exceed the stipulated thresholds, and relocate families that have shrunk in size due to marriage or death, to smaller flats, so as to better utilise land resources and taxpayers' money.

Lau Ping Cheung is a member of the Economic Development Commission cum convenor of its working group on professional services. His employer was involved in the Private Sector Participation Scheme before it was suspended