Bolstering Hong Kong’s home ownership rate
From time to time we hear someone proudly inform us that they, “bought during Sars". Anyone who purchased Hong Kong property in this bleak, fearful time obviously earned huge returns. Isn’t that satisfaction enough; must they crow about it as well?
Renters were also crowing after the Asian financial crisis, when prices continued to fall, not hitting a bottom until six years later, during sever acute respiratory syndromes. During this period, friends of mine moved into a big, handsome and well-appointed three-bedroom flat in Mid-Levels for HK$19,000 a month; the previous tenant had been paying HK$35,000.
As crushing as that multiyear property downturn was, there were winners as well as losers. One downside to high home ownership rates is that it puts the entire population on the same side of the bet. Without risk diversification, property downturns could turn out to be even more uniformly oppressive.
Hong Kong’s homeownership rate is 50 per cent and millions of families live in subsidised rental units, as they are unable to fend for themselves in the expensive private sector rental market.
The Our Hong Kong Foundation, headed by former chief executive Tung Chee-hwa, has a plan to raise the rate of home ownership to 80 per cent: simply sell the existing rental units to their occupants at steep discounts to the market price, with long-term mortgages covering up to 95 per cent of the costs.
Many look to Singapore as an example: more than 90 per cent of people own their own homes, mostly thanks to subsidised purchase schemes.
That has been a boon for the majority of those in the system, with home values in Singapore having surged some 70 per cent from 2009 to 2013 (before the government managed to push prices down through heavy interventions).
But what about future generations? Ku Swee Yong, chief executive of real estate agents Century 21 Singapore, sees dangers on the horizon.
“Public housing, heavily subsidised by taxpayers, should remain public housing,” Ku has written. “It should not be a wealth-generating asset that becomes more expensive over time. Otherwise, the wealth made by one generation will be a burden for the next generation.”
If Hong Kong’s public housing sector were transferred to individuals through subsidised purchase schemes as Our Hong Kong Foundation recommends, there would initially be a resale prohibition. But in time, all those flats would be allowed to trade freely on the market. How will the next generation get into the market?
China has already faced this dilemma. Recall that in the 1990s, Chinese citizens were given possession of their homes as the Communist regime privatised property. This became a huge source of wealth creation in urban areas, and over time many residents in cities such as Beijing and Shanghai used their flats as collateral to invest in other properties or trade up in an expanding market.
As prices soared, those outside the system found they could not get in. This included young couples, or newcomers to the cities, who found themselves priced out. As a result, China moved in the opposite direction: a few years back it initiated a major expansion in public housing supply, including many subsidised rental facilities.
Singapore, meanwhile, achieved its high ownership rates by fiat: 83 per cent of the population live in government-built homes. The government also uses housing as a means of social engineering, e.g., rewarding those who marry and have kids, or dispersing ethnic groups instead of allowing them to congregate in one area. And government control of the property market can facilitate economic planning. Some speculate that the recent years’ expansion in Singapore’s housing supply is meant to create a housing glut. The resulting fall in home prices would then have to be fixed through increased immigration: something the government desires for economic reasons, but the population less so.
Despite these creepy control features, Singapore is widely admired for providing decent housing for all. In Hong Kong, in contrast, many face long waiting lists to get into public housing.
This newspaper interviewed one poor chap earlier this year who quit his job in order to meet the income requirements necessary to get a subsidised flat. “It’s easier to get a job than a flat,” he reasoned. In the meantime, he and his wife were still stuck living with his parents in noisy, miserable and crowded conditions.
Cathy Holcombe is a Hong Kong-based financial writer