Hong Kong doesn’t just need more housing, it must also find more ways to turn renters into owners

The government’s backing for Lantau Tomorrow, reaffirmed in the budget speech, is a pragmatic solution to increasing the housing supply. At the same time, the home ownership rate must be boosted to give more people a stake in society

Mike Rowse

Published: 9:00am, 9 Mar 2020

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All the while I have lived in Hong Kong, the price and availability of residential accommodation have been burning issues. Governments come and go, but none seem able to solve the problem of how to put a reasonably priced roof over everyone’s head. As far as newspaper columnists searching for a topic are concerned, this subject just keeps on giving.

In the final year of the British administration, I recall, there was a performance pledge attached to the budget to provide 425,000 housing units over five years. That promise sailed away with the Royal Yacht Britannia.

The first SAR government picked up the idea and turned it into a much more exciting “85,000 flats per year” headliner. The stated aim was to move progressively towards home ownership of 70 per cent. However, after the East Asian economic crisis engineered a crash in property prices, that policy platform (unfairly) got the blame and the programme came to a crashing halt.

So here we all are many years later. We still have the same problem and the same choice of solutions: either use statutory powers to resume large areas of agricultural land in the New Territories to develop new towns, or engage in large-scale reclamation.

The decision to set aside significant sums in the 2020 budget to keep alive the dream of Lantau Tomorrow suggests the government has concluded that the first option is politically too difficult, so the second is the way to go. Reluctantly, I reached the same conclusion a while back.

If the chief executive and legislature had been elected by universal suffrage, the government would have the mandate to face down the Heung Yee Kuk and the property developers who, between them, control most of the land in question. But we are quite some way from the political reform necessary to achieve a strong popular government. So East Lantau Metropolis, here we come.

While we are grappling once more with the problem of providing sufficient land to boost housing supply, it is also worth taking up the cudgels again on the need to rebuild the housing ladder.

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The idea is that the less well off begin as public housing tenants and gradually progress to purchasing subsidised housing as their circumstances improve, then on to private housing. The ladder has effectively broken down in recent years.

Last year, Our Hong Kong Foundation published a policy outline titled “Vision of Universal Affordable Housing in Hong Kong” which set out how we could boost our current low home ownership levels (49 per cent against 91 per cent in Singapore).

Of the 10 recommendations the paper included, the government has so far adopted four, which might be thought not a bad effort considering the many other problems on its plate. But it is worth pursuing the remainder, in particular the proposal to relax rental and sales restrictions.

There are benefits to boosting home ownership levels. First, it is a positive step towards narrowing the wealth gap as more people enjoy a share of the community’s assets.

Second, low-income households should get a chance to buy. We cannot all expect to live in a mansion on The Peak, but giving citizens a modest stake in society is a progressive move.

Third, turning renters into owners unlocks land value, and tends to lead to a more efficient utilisation of housing units.

How does encouraging tenants to purchase their property unlock value? Take two hypothetical public rental units, one larger and one smaller. Each has been occupied for a long time by the same people. The larger one is now occupied by an elderly couple whose children have grown up and moved out. The smaller one is occupied by a younger couple with teenage children.

The value of the flats on the open market would be HK$3 million and HK$2 million respectively. But they are not worth these sums to the occupants, since they are not owners. But nor are the flats worth anything to the government or Housing Authority.

Now let us suppose we allow the tenants to buy the flats they occupy at a discounted price – say equivalent to construction cost only.

The elderly couple are willing to sell for HK$3 million, provided they can buy a smaller unit for HK$2 million, which is still appropriate for their needs. That transaction leaves them with an asset they can pass on to their children plus a million in cash to defray living expenses.

Meanwhile, the younger couple have used the HK$2 million from the sale of their smaller unit plus a mortgage of HK$1 million, which they are easily able to repay, to acquire the larger unit more appropriate to their circumstances.

This is a hypothetical case but the principles are sound. There are practical matters to address (size of discount, whether and how to reclaim all or part of the discount on sale, etc) but all are solvable. There are also issues of equity – is it fair to other taxpayers in the queue for public housing to let these assets go cheaply? But other governments have cleared these hurdles, and so must we.

By all means let’s press on with plans to increase the number of flats, in particular for public rental housing. But let us not take our eye off the need to manage that stock more efficiently.

Mike Rowse is the CEO of Treloar Enterprises

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