Why I oppose the resale of public rental housing units
Ho Lok-sang warns that selling PRH units attracts profit-seekers while making poorer people wait longer to get assigned flats
Hong Kong has had a long tradition of offering two tracks for helping citizens to solve their housing problems. In 1978, the first generation of Home Ownership Scheme housing was born. Since then, many public rental housing tenants have given up their units and moved into HOS housing. PRH tenants were given priority over White Form applicants in buying HOS flats. The government explains that this is because when a PRH tenant buys an HOS flat a PRH flat becomes available. The HOS is a great idea: It not only allowed PRH tenants to improve their housing conditions and become an owner, but also released a unit for those in the queue. Meanwhile, the Housing Authority generates a profit from the sale of HOS flats which was more than enough to meet development and maintenance costs for its PRH program. HOS flats are attractive because they are cheaper than private homes; this discount is possible because part of the land cost was not paid for when HOS units are sold. According to the original thinking, HOS units must not be resold in the open market unless the owed land premium together with any price appreciation since purchase has been repaid. Thus, HOS flats in a sense are not really “subsidized”: The government recoups the land cost appreciation when the owed land premium is repaid.
This ingenious design of the HOS has attracted criticism from some economists, who observed that HOS flats are not often resold. People appear to be trapped in HOS flats; the culprit is the high cost of repaying the land premium, which made it difficult for the household to move to a flat of their choice. This would imply that households living in HOS flats would be less happy than those in private flats. But an online survey conducted by me in 2011, which attracted over 8,500 responses, showed that actually those living in HOS flats are much happier than those living in private flats, and reported a happiness index of 7.53, as compared to 7.15 for the latter. I concluded that HOS households were mostly satisfied and happy that they were protected against rent increases, and that their tenure in their flats is secure. They seldom made a move because they were happy where they were. I cite the results of a 2011 survey because we had a generous corporate sponsorship then and we have never been able to canvass so many responses since.
In 1997, the Housing Authority established the HOS Secondary Market Scheme and allowed flat owners to sell their flats to Green Form applicants without repaying the owed land premium. This indeed raised the turnover of HOS flats; it also released more HOS flats for people in the queue. However, the availability of this channel to resell HOS flats without paying the owed land premium also increases the profitability of buying HOS flats. It has been documented that flats sold in the HOS Secondary Market are often sold at very good prices. The small price premium that an open market sale can fetch does not justify repaying the land premium. The high Secondary Market prices of HOS flats suggest that many public housing tenants have the financial resources to pay those prices. The fact that for years PRH tenants have been paying very low rents has allowed them to accumulate much savings. Moreover, upward mobility is also still alive in Hong Kong, even though it may not benefit everybody. From this perspective, while the Secondary Market Scheme did help release more existing PRH units for those in the queue, it also attracted more applicants in search of capital gains.
The primary reason why I oppose selling PRH housing is that it attracts profit-seekers. Proponents of PRH privatization say that it allows more people to share the fruits of Hong Kong’s economic progress by enjoying capital gains on the homes they own. Unfortunately, this well-intended result comes with a price: Namely that by attracting profit-seekers to line up for PRH, those who are currently poorly housed will have to wait longer to get a PRH flat assigned to them. Recently, a PRH flat in Sheung Shui was sold in the open market for nearly HK$6 million, with a per-square-foot price of HK$10,920. This compares with the original purchase price of mere HK$222,400 paid in 2001. The lucrative gains are a big attraction to anyone, to the extent that one would rather forgo career opportunities in order to stay qualified to be admitted as a PRH tenant. That would mean a waste of human resources, apart from longer queues that frustrate the truly housing-needy.
At one time I had agreed to selling PRH flats — if resale of these units is restricted to those who currently qualify to apply for PRH flats as tenants. Today I would disagree to that too. My objection even to that is because in practice if this rule were to be in force, the resale price would be so low that the original owner would rather keep it if only as a storage space.
If helping those in need of housing is a priority, let us give up any thought of selling PRH flats.
The lucrative gains are a big attraction to anyone, to the extent that one would rather forgo career opportunities in order to stay qualified to be admitted as a PRH tenant. That would mean a waste of human resources, apart from longer queues that frustrate the truly housing-needy.