Leung Chun-ying, the former chief executive of the Hong Kong SAR, recently proposed developing a new kind of Home Ownership Scheme (HOS) for housing using land on the fringes of our huge country parks. I am in full support of this proposal. I also fully support his proposal to remove any income or asset limits to eligibility. The existing means-based criteria for eligibility have caused a lot of distortions and are not logical. It is far better to design a program so that well-off people — who can take care of their own housing needs and who have an eye on capital gains — opt out of their own accord.
By requiring buyers to live in the units and not to own any property elsewhere in Hong Kong, and in the event of a resale, to sell back to the Housing Authority without profit, Leung will go a long way in reserving socially precious resources to serve the real needs of those who cannot afford to buy a home for themselves. By limiting the size of the flats to 500 square feet, those who can afford to buy a more spacious home in the private market are also likely to opt out. There are many desirable features in the design, and the SAR government and Hong Kong society should seriously consider it.
My own proposal, which has been discussed previously in this column and elsewhere, bears several resemblances to Leung’s proposal.
First and foremost is the removal of the means test and instead relying on human nature to encourage those who can afford to buy in the private market to opt out. This is far better than defining some arbitrary line for eligibility above which one does not qualify and below which one does qualify. The problem with this traditional way of defining a target group is that if the stakes are high, people will try to retain their status within the target group, or exchange their behavior in order to get into the target group! Some will refuse to take a better-paying job to remain qualified. Since people naturally want to move to better housing if they can afford it, HOS housing that offers residents basic but decent housing will not be attractive to those who can afford better housing. We need to understand that there is a trade-off between improving housing quality and improving the housing conditions of more people more quickly. I had proposed that each flat should be no more than 400 square feet. This is less than Leung’s proposal of 500 square feet. But we can then build more and we will discourage people who desire bigger flats from applying.
By requiring buyers to live in the units and not to own any property elsewhere in Hong Kong, and in the event of a resale, to sell back to the Housing Authority without profit, Leung (Leung Chun-ying) will go a long way in reserving socially precious resources to serve the real needs of those who cannot afford to buy a home for themselves
I support Leung’s proposal to require buyers to live in the flats they own but would advise that this requirement be made permanent. This will ensure that the property does not serve any investment purpose. Buyers will then more likely be those who currently live in rather bad conditions.
Like Leung’s proposal, I advise pricing according to affordability but instead of pinning down any price per square foot, I advise pricing at 10 times the median household income of Hong Kong residents, and allowing deviations above or below this average price based on location and other characteristics of the units.
Regarding resale, I differ from Leung, who requires resale to the Housing Authority within 10 years. I think the units should be allowed to be sold any time at the market prices, as long as the new buyer is qualified to own property in Hong Kong and agrees to all the terms specified in the land lease: namely that the owner must not own any other property in Hong Kong and must live there. Renting out is also not allowed. My proposal would likely allow the possibility of very modest capital gains. Given the strict requirements over usage, investors will certainly look elsewhere. Since the units will forever be reserved to help Hong Kong residents meet their basic housing needs, there will be no need for any repayment of the land premium.
Finally, I totally agree that taking a small percentage of country park land to meet housing needs should be allowed. The Country Park Ordinance was enacted in 1976. At the time, our population was 4.3 million. Today it is 7.5 million, some 74 percent more than in 1976. Our residential land makes up just 7 percent of our 1,111 square kilometers of land. There is surely a need for a better balance between housing and conservation needs. Under the current population projection from the Census and Statistics Department, our population is expected to peak at 8.2 million by 2043. While there is uncertainty over exactly when our population will peak, our population growth has already slowed considerably and will surely come down sometime in the not-too-distant future. Leung’s suggestion is to take roughly 0.2 percent of land out of our country park. The social cost of this is very small compared to the social benefit of the 30,000 units that he proposes to build.
The author is a senior research fellow at the Pan Sutong Shanghai-Hong Kong Economic Policy Research Institute, Lingnan University.
The views do not necessarily reflect those of China Daily.