Perhaps the only surprise is that it did not happen sooner. Hong Kong developers never liked Chief Executive Tung Chee-hwa's plan for mass public housing but knew the alternatives were worse. Now, the gloves are coming off with calls to halt the project. Improving Hong Kong's Third World-housing stock and ending the familiar boom-bust speculative property cycle was Mr Tung's big political idea. A U-turn will render him a lame duck chief executive, but the alternatives are rapidly narrowing. The last budget saw big tax breaks, increased social welfare and expanded house-building. It assumed land revenues equal to those received last year. Given a stagnating economy, corporate taxes will undershoot and duties from property and stock transactions must disappoint. In short, we are looking at a big fiscal deficit. How big depends on the severity of the property downturn. Not that we have had a property market - at least by the dictionary definition of 'market' - for the past four months. Developers are hoarding flats and secondary market transactions have effectively ceased, with banks refusing to grant mortgages. Whatever the political imperatives, the Government knows this cannot continue unchecked. Depending who you talk to, prices have fallen about 35 per cent. Why? A regular Laguna City flat commands about $4,500 per square foot, compared with $1,500 for a similar unit in Singapore. The point is that Hong Kong property prices are very expensive. Banks have up to 40 per cent of their assets in mortgages and the regional economic crisis is intensifying rather than diminishing. That said, price volatility is part and parcel of the Hong Kong property market. It is not complicated; buy land at the bottom of the cycle - or negotiate land conversion premiums - and sell flats (lots of them) at the top. We have been here many times before. The 1994-95 downturn saw a similar hiatus, with tight finance and potential buyers sitting tight. It followed rising United States interest rates and the mainland austerity programme. The worry this time is prices are so much higher, even more people have bought and the outlook for economic recovery is much worse. Property downturns are bad news for any economy. Rarely, however, do they pose a risk to the entire banking system. There are many good reasons why Hong Kong should have more flats. Indeed, it is scandalous that a sophisticated working population lives in such grim conditions. But that is no longer the issue. More job losses among white-collar workers are inevitable. A further speculative attack on the currency, forcing interest rates sharply higher, cannot be ruled out. Resilience in the mainland export trade continues to support the economy, but with little other good news the self-feeding dynamics of falling asset prices means banks increasingly will pay more for funds and lend less. The harsh reality is that unless something gives we face a system failure that could take the banks down. And that means the death of modern Hong Kong as we know it. To show the markets a huge fiscal deficit in the present climate would be like offering a red flag to a bull. Mr Tung's housing plans were ill-conceived but he inherited a market with a structure decided decades before. Developers' calls for public housing to be halted represent narrow self interest. Next year, the big firms will complete the greatest number of flats since 1992. Supply can be hoarded temporarily but they desperately want to keep prices up to defend their profits. Should they keep sliding, it will not be long before small banks face solvency problems. Should that happen, the downward cycle can only be exacerbated. Yes, Hong Kong needs a new housing policy but in these dangerous times, public housing should be dramatically scaled back and land sales put on hold. That is the price of concentrating power in the hands of a small oligarchy. Yet, sadly, that is the public interest.