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Here’s why Hong Kong’s commuting subsidy will hurt the people it’s supposed to help

The Law of Unintended Consequences always applies when bureaucrats tinker with prices of goods and services in an economy. They hope to make life easier for people and they just wind up making it harder.

PUBLISHED : Monday, 09 October, 2017, 4:24pm
UPDATED : Monday, 09 October, 2017, 10:45pm

Hundreds of thousands of Hong Kong’s long distance bus and rail commuters will get special public transport fare discounts under a concession scheme to be outlined by Chief Executive Carrie Lam Cheng Yuet-ngor ...

Sources have confirmed the government is likely to use part of dividends from the MTR Corporation to subsidise fares for commuters taking long trips. -- SCMP, October 6

It must be déjà vu. Only six years ago, Hong Kong’s government did exactly the same under something called the Work Incentive Transport Subsidy Scheme.

The idea back then was that life was unfair for low paid workers commuting long distances from homes in places like Cheung Chau and Yuen Long. To restore fairness, the government ordained that such people earning less than HK$10,000 (US$1,280) a month were eligible for a travel subsidy of HK$600 a month.

And then, within a year, this was changed to cover all workers earning less than HK$10,000 a month, not just the ones with long commutes.

Let’s ignore for a moment that this scheme effectively creates a maximum wage limit at HK$10,000 a month – “No, boss, do not give me a 5 per cent wage increase. You’ll make me lose my 6 per cent transport subsidy.” Our big question is rather how long it will take before this latest Carrie brainwave is again extended to everyone, not just long distance commuters.

Then, in another six years, we can conveniently forget that we have already done it twice and do it all over again a third time. At this rate, bus fare will soon be something that you are paid rather than that you pay.

But there is another reason that this is a bad idea and more likely to hinder than to help the people it’s meant to serve.

As an investment analyst in the depths of the bear market in the early 1980s, I myself moved to Cheung Chau for a few years. I loved the place, still do, but my reason for going was simply that housing was much cheaper there.

The price I paid was an hour-long ferry commute each way and the need to pay close attention to the ferry timetable. You may have done much the same at some point in your career, traded travel costs and convenience for cheaper housing.

So here is the question: If the burden of that extra cost and inconvenience were taken away, would your housing still be as cheap?

You do not really need to ponder this question. You can look up the answer in any number of transport and housing studies across the world.

And the answer is – May I have the envelope, please – Ah, yes, housing costs go up in such cases. What a surprise.

So what Carrie Lam will do with this new additional transport subsidy is present a property market windfall to owners and landlords in places like Yuen Long and Cheung Chau.

And if you are renting a home in these places, you will be faced with higher rents while, if you are looking to buy a home there, you will be faced with higher housing prices.

If this does not run directly counter to stated government intentions of helping younger people find homes they can afford, well, pass me my hat and give me some salt and pepper with it so I can make that hat a little more palatable when I eat it.

Yes, I quite admit that I cannot present you a straight time line of cause and effect in how much a lower bus fare will push up the price of a flat in Fan Ling, but it will nonetheless do so as certainly as night follows day.

With small changes, as this subsidy will be, you will not see much of an effect. But put in a new rail line far from where any has been before and just watch the speculators buy up the nearby land before the announcement is made. Either way, the one follows from the other. That’s how people and money interact.

It’s called the Law of Unintended Consequences, and it always applies when bureaucrats tinker with prices of goods and services in an economy. They hope to make life easier for people and they just wind up making it harder.

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