In the waning days of British colonial rule legislators amended the law, capping public housing rents at 10 per cent of median income. At the time, no one imagined incomes could fall in Hong Kong, and the intent was to keep the Housing Authority from raising rents as the private market continued to boom - and the assumption was that it would. That was before the Asian financial crisis and before the shrinking real estate market we have encountered since then. But even in 1997, the law was a bad idea, as most advanced economies have come to accept that people should pay 25 per cent to 35 per cent of post-tax income for housing, and United Nations guidelines provide that low-income earners should not pay more than 30 per cent. With yesterday's ruling in favour of tenants Ho Choi-wan and Lam Kin-Sum in their case against the authority, a misguided attempt at social engineering has come home to roost. The judgment puts in jeopardy billions in future Housing Authority income and makes it vulnerable to backdated claims. Coming at a time when the authority is projecting deficits - owing mostly to the scrapped Home Ownership Scheme flat sales - the ruling will surely have a bracing effect on the government. The authority may choose to appeal against the ruling, but that could prove difficult as the judge dismissed any question of legislative intent. A more prudent course of action would be to seek repeal of the law and to institute reforms in how rents and public housing units are assigned. The latter needs to be done in order to fix aspects of the housing programme that keep it from fulfilling its mandate to provide shelter to Hong Kong's neediest families. A policy of tight supply for years supported high private rental and sale prices, while a sprawling system of subsidised housing was built up to help those who could not afford to pay market prices - and to keep the social peace. The bargain held so long as prices were rising and enough families became homeowners, either in the private market or through the government's subsidised HOS programme - and so long as public housing was not seen as a competitor to the private market. Indications that a substantial number of those who lived in public rental housing were not truly needy were ignored and the government continued a system that guaranteed lifetime tenure so long as tenants paid their rent. No periodic means-testing was applied to weed out those whose incomes had risen and who could afford housing on the open market. Children of tenants were even allowed to inherit the flats, also with no means-testing. Meanwhile, thousands of needy families have languished on the waiting lists and lived in squats. Means-testing has recently been introduced for new applicants, but such requirements for those already in public housing have been considered too controversial to bring up. In seeking to reverse the ill-considered 1997 changes, the authority should study thoroughly how a new system of determining eligibility for housing could be implemented to ensure help is properly targeted at those who need it most. The ruling affects two million people, and it is unclear how the authority will undertake its review of their rents in light of the ruling. Though it may prove to be a bureaucratic headache, it would be a step in the right direction if the authority undertook to apply its means-testing to all tenants. The public housing system has served Hong Kong well since it was established half a century ago. It provided shelter to a booming population and laid the groundwork for a stable and prosperous society. It still has a role to play in this regard, as long as it fulfils its mission of helping the city's neediest people.