Radical rethink needed to find solutions for HK’s housing woes

All three candidates for the post of Hong Kong chief executive have accepted that provision of housing for all sectors of the community will be one of their key priorities should they be elected later this month with Carrie Lam agreeing in her manifesto that “the housing ladder needs to be rebuilt to provide families in different income brackets with the opportunity to become home owners”.

The reality, of course, is that currently there is no clear ladder as such and we only, in effect, have three options – public rental housing (PRH), Home Ownership Scheme (HOS) and the private housing sector – and there are major financial and supply challenges associated with transition from one to the other. This limited choice has contributed much to the social disharmony obvious in society today.

If we accept that it is important to increase both the range of choices and the mobility within the market and that we need not only to encourage greater home ownership as well as the development of improved private rental stock, then there is clearly much to be done. Each of the candidates accepts the need to find more land for housing and that this will involve an acceptance in society of the requirement for give and take in order to come to a balanced solution which addresses the needs and concerns of the community as a whole. I have advocated for some time the need for a detailed independent audit of all potential sources of supply and I still believe that this should be the starting point of any new supply policies.

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Be that as it may, I think there needs to be an early discussion about the future of public rental housing with focus on the long term liability it represents, the need to encourage greater mobility and the adoption of a more rigourous tenant compliance policy. Any such discussion, however, needs to be underpinned by access to affordable alternatives and although somewhat radical perhaps thought could be given to ring fencing existing and future public rental housing supply at or about present levels and moving to a model where all new government provided stock is for purchase and takes the form of home ownership scheme, albeit with more varied financial entry formats and a revised calculation basis for premium payment on resale.

At the end of last year there were some 282,000 applications for public rental housing, representing a waiting time of 4.8 years and only 7,000 units per annum have been recovered by the housing authority for re-letting, similar to the roughly 1 per cent of the total stock over the last five years. The government is currently targeting building 280,000 new rental/home ownership scheme flats over the next ten years and it would obviously dramatically change the housing landscape if all these were to take the form of subsidised/incentivised purchase in some form or another.

In her manifesto Lam refers to the provision of “starter homes” and indeed this is a serious gap in the market and we are seeing part of the response to this in the recent rise in the number of micro flats being offered for sale. However, these units are still beyond the means of many would-be new households and again we need to look at a range of possible models. In other jurisdictions the conversion of older districts into affordable housing through adaptation and remodelling has been a source of new supply with a performance attitude towards planning and building regulations making this possible. Indeed, we have precedent here in Hong Kong with the positive response from developers to government’s whole building conversion initiative to encourage the revitalisation and upgrade of industrial buildings to commercial use. Adopting a pragmatic view, and obviously having due consideration to safety issues, can we not introduce a similar scheme for conversion to residential use with units being for rental only. Premium concession could perhaps be linked to specific target markets in terms of affordability via rental caps, the size of units, type of any shared facilities etc.

Just as there is an absence of mobility with the public rental housing portfolio, the same is true in existing home ownership scheme stock due largely to the current requirement that the premium payable on resale is calculated on current market value, not at the date of original purchase.

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Lam has suggested a mechanism to allow home ownership scheme owners to let their units if they no longer wish to occupy them and this would also be a short term way to increase the supply of rental units in the market. However, it does not address the resale issue and, unfair as those who have paid the full premium in the past will argue, there is a need to find a way to unlock the situation going forward. Perhaps adjusting the original premium for inflation, rather than the uplift in market value, could be a possible solution.

We then move to the most challenging segment – i.e. those with income levels which mean they do not qualify for any form of public housing but who still struggle to find decent accommodation to rent or purchase in the private sector. When the city tried to address a similar challenge in the late 1990s it introduced the “sandwich class” scheme but this was unsuccessful, partly because it represented direct, subsidised competition with the private developers and partly because there was a market correction which made private sector units more affordable. There have been suggestions that we might consider a similar scheme again, perhaps using the housing society as the delivery agent but the same factors could well apply. Is it not time therefore for a more radical rethink and for consideration to be given to the adoption of a cooperative approach between government and the private sector whereby, under the lease conditions, the developer is required to provide a certain percentage of affordable units within any major residential project with a price cap and appropriate resale restrictions which would be reflected in the premium charged. In London, the developer of every large scale residential project has to provide 35 per cent of total gross floor area as affordable/social housing either on site or within the local district. Initial concerns centred on the impact on the value of the remaining 65 per cent but through appropriate and sensitive design this has not proven to the case. Similarly housing for singles and the elderly could also be included in the mix and hence we could move towards building communities rather than single category estates.

Ownership, of course, brings stability but also responsibility, and it is still a basic livelihood ambition of many Hong Kong residents, particularly given its success as a creator of wealth for many families. However, in other economies it is not unusual to find a significant segment of society of all income levels that prefers to rent rather than buy. In other markets this is being addressed by build to let initiatives and with changing habits and more transitory lifestyles in Hong Kong, we might also wish to include this approach in our long term thinking so as to ensure that there are multiple housing choices for all.

Nicholas Brooke is chairman of Professional Property Services