Ban on tenants owning property could cut public housing queues

Since the handover, the Hong Kong Special Administrative Region Government has proposed and implemented a myriad of new policies for subsidized housing. Unfortunately these new initiatives tended to aggravate rather than alleviate the problem of public housing shortage.

Hong Kong only needs an administratively simple policy that caters to the needs of those who cannot afford the cost of private housing. As a matter of fact, the policy since 1978, with Home Ownership Scheme housing for those who can buy at a price moderately lower than that of private housing, and public rental housing for those who cannot, has proved to be highly sustainable and also very effective in helping the target group population. This allowed Tung Chee-hwa, the first chief executive of the HKSAR, to pledge to reduce the waiting time for public housing to three years in 1997. The public housing policy only needed some streamlining but really no major surgery.

What is wrong? What is the way out?

What is wrong is that the various initiatives proposed mainly serve to enhance the attractiveness of both public rental housing and HOS housing, and also to reduce its supply. The result of boosting demand and reducing supply is naturally longer queues. That is exactly what we have seen.

First, the most game-changing initiative among all post-handover proposals is of course the Tenant Purchase Scheme, or TPS, which allowed sitting tenants to purchase their units and thus pocketing the potentially huge capital gains from resale. Since 1998, for the first time ever, applying for public housing became a way to get rich fast. Although the policy was terminated with the announcement in November 2002, the damage was done. Many people still cherish the hope that public housing might be available for purchase again.

The TPS scheme also has an unintended consequence of reducing the public housing stock. The sitting tenant who has purchased his unit under the TPS scheme could head a “well-off” household which would have to give up the unit, and in any case after that unit has been sold in the open market, it is no longer part of the public housing stock. It will have been completely privatized. The total number of such privatized public rental housing units is over 120,000. Although many of the buyers probably would continue to be tenants if they had not bought them, this is still the potential stock of public housing lost due to the TPS. Another scheme that translates to a decline in the stock of public housing is the Green Form Subsidized Home Ownership Scheme, which designates some newly built public housing as apartments for sale to existing public housing tenants. This scheme actually also increases the attractiveness of being a public housing tenant. The argument that since a public housing tenant would leave public rental housing when he buys an apartment under the Green Form scheme is disingenuous, as it will take quite some time before a vacated PRH apartment is ready to be assigned to someone in the queue.

The convenience of using public housing tenancy as a criterion to identify who qualifies for the handouts that come with the annual budget of the financial secretary is yet another policy change that added to the attractiveness of being a PRH tenant.

The My Home Purchase Plan is yet another policy that seems strange in an environment of acute PRH and HOS shortage. It offered potential buyers the right to rent the units at a fixed rent for five years and then count half of the rents paid toward the purchase price if they decide to buy. The prevalence of oversubscription for HOS housing suggests that such schemes are not really necessary.

In place of these schemes, I would make three proposals. I believe they are easy to implement, and will improve the efficiency of our public housing policy.

First is that the Housing Authority should strictly prohibit a PRH tenant or an HOS owner from owning any property in Hong Kong. This restriction admittedly cannot apply to HOS units which have already been sold. But it should be imposed on all new HOS units. Buyers can choose to give up buying if they reject this restriction. This requirement is likely to discourage those who have the means to buy a private apartment from applying for an HOS unit. It will also likely encourage tenants who are financially capable of buying an apartment to leave PRH in order to regain the freedom to invest in Hong Kong property.

Second is to change the pricing of HOS units from linking with the prices of private apartments to linking with Hong Kong’s median household income. This will reduce the fear that housing prices would outpace salary increases, and thus reduce panic buying.

Third is to impose a new resale requirement for new HOS apartments, which is that they can only be resold to someone qualified for HOS apartments. The new resale requirement will replace the old requirement of no resale until after five years. This will help increase the number of resale units available to qualified potential HOS buyers.