To fight income inequality in Hong Kong, take on the property development cartel
Philip Bowring says that the problem of Hong Kong’s income inequality can’t be solved without taking on development cartels and addressing runaway home prices, and suggests raising rates and phasing out interest relief
Cheap money is already the single most important cause of the asset bubbles affecting real estate in many cities, and stock prices globally, and with our US dollar peg, Hong Kong cannot escape. But our problem is that the primary local actors – the government and big developers – thrive on asset inflation. Both have a long history of restricting land supply to promote that. All the talk of the difficulties of increasing land supply is little more than a lame excuse.
Financial secretaries live in dread of property price falls because they are bad, not for the economy, but for their budgets, in the form of land revenue, profits tax and stamp duty. For 15 years, they could let asset inflation do their work for them, avoiding the challenge of broadening revenue. Instead, they have undermined their tax base and fuelled asset prices through mortgage and other tax relief, benefiting the upper 20 per cent of earners.