Sell off public housing at affordable prices to help Hongkongers achieve their home-ownership dream

People intuitively understand that building more private homes would not address Hong Kong’s immediate housing woes, for two reasons. First, a faster rate of housing production is simply not possible because land is not available at the moment.

Second, high market prices make private homes unaffordable for almost everyone. Building, say, 30,000 or even 40,000 private units a year is unlikely to make private homes more affordable.

Moreover, 80 per cent of all households have monthly incomes below the eligibility level for either public rental housing or subsidised for-sale flats. Virtually none of them can afford private housing; not even those making HK$60,000 or HK$70,000 a month.

These households represent a very large and diverse group, yet high home prices have homogenised their housing demands into an undifferentiated demand for more public rental housing and cheaper subsidised for-sale flats.

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I know most people still hope to own a private home – for most people, housing wealth is their second most important asset after human capital. But when only a third of Hongkongers have private homes, can there be a good feeling among them?

The current desperate desire for more public housing reflects their frustration.

Our government has always promoted the “housing ladder” narrative. Households without means start on the bottom rung of highly affordable public rental housing, move up to subsidised for-sale flats as their incomes and savings grow with a rising economy, and finally rise to the top of the ladder – private homes, a mark of economic and social achievement in capitalist Hong Kong.

But runaway home prices have broken the ladder and halted the growth of private home-ownership. Should people now forsake their dreams? Is there a way to halt the slide into more public housing? Can the “housing ladder” be restored and people’s hopes and aspirations be rejuvenated?

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For decades, our housing supply followed a 50-50 split between public and private housing. The balance was shifted to 60-40 in favour of public housing under Leung Chun-ying’s administration.

But there is a philosophical case in favour of private housing because it frees residents from becoming enslaved to the state. Only then can they vote as free men and women for greater protection of private property rights and individual freedom, and not for more entitlements. Democracy will be better served as a consequence.

The “housing ladder” narrative has been a practical policy solution to that philosophical argument. Government assistance does not guarantee success for everyone. One has to save and work hard to climb the ladder, but government assistance makes the climb feasible, for many if not all. Therein reside the values of social responsibility and individual enterprise that Hong Kong has long cherished.

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This assistance is clearly no longer adequate to meet people’s hopes and aspirations. The distance between the rungs is too wide for almost anyone without considerable means to make the climb.

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The problem is not high home prices alone, but also the high initial down payment, which makes it nearly impossible to borrow against future income. It is as if the interest rate I am charged is infinite, so I cannot borrow at all. Economists have a fancy term for this problem: capital market imperfection.

In today’s circumstances, the government has two choices. One option is to tackle the housing problem by building more affordable public housing and charging low rents and cheap prices, while prohibiting or tightly restricting circulation of these flats on the market.

The other is to sell public housing at low down payments and with loans at “risk-free” interest rates. This would narrow the wide distance between the rungs and allows the less-well-off to hitch onto the “housing ladder”.

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Introducing a market mechanism into our public housing sector would be an opportunity to help unwind our community from the bind we are in.

Contrary to what many people think, I am not an enemy of the Housing Authority or public housing, which in the past has provided a path for the less-well-off to achieve the ultimate goal of owning private housing.

Yet public housing should not be the ultimate social goal. The domination of public housing that cannot circulate is detrimental to our economic prosperity, social cohesion and political inclusiveness.

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If our public housing flats could circulate unfettered, our GDP would increase by at least 1 per cent. There would be a boosting effect on the lower labour force participation rates and a dampening effect on the higher unemployment, divorce and single parenthood rates that are far more prevalent among public rental housing tenants than similar individuals in private rental housing.

And if you examine voting patterns, you will find more support for left-wing and right-wing populist candidates among people living in the younger public rental housing estates.

A vote for socialised housing is a vote for less economic prosperity, for social dissension and for political divisiveness. Worse, it will not lessen the divide between the “haves” and “have-nots”. Need I say more?

Richard Wong is professor of economics and Philip Wong Kennedy Wong Professor in political economy at the School of Economics and Finance at the University of Hong Kong