Public Housing and Housing Affordability of Hong Kong People Professor Anthony B. L. Cheung Member of Executive Council, HKSAR Chairman, Subsidized Housing Committee, Hong Kong Housing Authority

Why Public Housing? Housing is both economic and social policy Public Housing (rental) in 1970s: housing the low- income families in affordable self-contained units A form of “social wage” – promotes HK’s competitiveness Facilitated the development of “New Towns”, bringing up economic value of new developed land – more land revenues to government Stabilized society and social expectations, promoted upward mobility and reduced class tensions Government/HK had “net” gain in overall economic and social costs.

Public Housing towards Home Ownership HOS from 1979: provided affordable ladder to home ownership for grassroots families – “green” and “white” forms Expansion in home ownership served further social stabilization purpose Released public rental units for allocation to applicants on the waiting list After 1997: restrictions on resale of HOS units partially lifted, facilitating further upward ownership mobility and the growth of second-hand market “Orderly” cycle of housing mobility benefitting whole community

Breakup of such 3-tier housing structure in 2002 Because of 1998 Asian financial crisis and collapse of property market (by 60-70%) Social discontent (e.g. on negative equity) blamed on HOS which formed part of government’s then pledge on annual new housing target of 85,000 Need to rescue property market (and by extension banking sector): (a) government terminated HOS, leaving the housing development market; (b) lifting of regular land sale by auction Henceforth, a new 2-tier structure: (a) Public Housing (rental only, means-tested); (b) Private Housing (rental and ownership) End of home ownership target of 70% of households Erosion of then Long-Term Housing Strategy

Growing tensions in such 2-tier structure: Affordability Crisis Private Market – escalating prices (and rents) due to (a) past limited supply of residential land; (b) overwhelming purchasing power from abroad (especially Mainland) (HK is now a national market!) Public Housing – jump in demand from young people, including young singletons. 2-tier structure not sustainable – interim government measure is introduced via My Home Plan

Features of emerging macro-picture HK becoming a national market – “one country two systems” = “one market two systems” Global financial centre status plus narrow industrial base leads to increase in income disparity (same in Singapore) Housing tenure an importance source of sense of security in life; also wealth effect (i.e. housing ownership and assets value) now becomes important basis of wealth divide between the haves and have- nots? Government has to respond to needs and demands for both affordable private housing and social housing, from both the grassroots as well as the middle class.

Housing Market Problem – Cyclical as well as Structural? Supply-side solutions: – Increase land supply, regular land sale to dampen prices? – Build more public housing units: but land constraints? – Resume some form of HOS? Demand-side measures: – Impose more conditions over applications for public housing (e.g. points system for young singletons on waiting list): such rationing of demand does not really solve the problem – Restrict overseas purchase of local properties (certain types and price levels?): policy and legal implications? practicable?

Prospects Supply-side solutions only work up to a point; the supply of public housing cannot be unlimited Mainland purchasing power cannot be underestimated! Without some restrictions on external purchase, local property market is at the mercy of external factors – this will breed resent towards and even hatred of Mainlanders and social anger in domestic population (cf recent Singapore election) “Bifurcation” of residential sector into a large government- assisted and a higher-end private sector (like Singapore) so as to provide stable housing to locals and confined overseas purchase to private sector? “Taxing” land sale revenues to form Public Housing Development Fund: channeling of land profits to support government-assisted housing (the need for which arises from rising property prices)

Rethink necessary Need for new Long-Term Housing Strategy