Chief Executive John Lee Ka-chiu made an impassioned appeal to legislators to approve the approximately HK$30 billion ($3.86 billion) budget for the Light Public Housing Scheme.Earlier on, quite a few legislators had called the proposed program excessively expensive. John Lee, speaking at an economic forum last week, implored critics to note that statistics were “cold and did not reflect the suffering of residents in tough living conditions and their desire to improve their living conditions.”
It is Hong Kong people’s good fortune that John Lee would put himself in the shoes of the underprivileged ones in the city. This is the golden rule that I have talked about in multiple articles before. Tung Chee-hwa, the first chief executive of the Hong Kong Special Administrative Region, had the same mode of thinking when he said that governments should be anxious about what people are anxious about, and try to think what people think.
As much as I applaud John Lee’s plea for policymakers to put themselves in the shoes of the beleaguered ones in the city, however, there are reasons why HK$30 billion may be better spent in ways other than on light public housing.
First, actual units from the proposed light public housing program, even if on schedule, will take at least two years before they can become available, and there are reports that these units would likely be demolished in five years after they are built. The building and demolition of the buildings after a short life of about 5 years would be environmentally costly. On the other hand, if the money were to be given out as a subsidy to existing property owners who would convert suitable flats that they own into units that are certified to meet specific criteria and rented out, we would have a much larger supply of livable units much sooner. We could impose conditions on the subsidies, to ensure that living space would be at least 70 square feet (6.5 square meters) per capita, and that rents satisfy certain key parameters.
Second, may I draw the government’s attention to the dramatic distortion of the market by the Special Stamp Duties. According to the Rating and Valuation Department’s statistics, back in 1999, Class E (160 sq m or above) rents per sq m stood at HK$301, HK$185, and HK$191 for Hong Kong Island, Kowloon, and the New Territories. These are respectively equal to 158 percent, 108 percent, and 144 percent of Class A (40 sq m or less). In December 2010, immediately after the introduction of the SSD, Class E per sq m rents had risen to HK$439, HK$342, and HK$293, which then held an even greater premium to Class A rents (at 171 percent, 162 percent, and 166 percent respectively for Hong Kong, Kowloon, and the New Territories). After the introduction of the SSD, the pattern of larger flat rents holding a premium over smaller flat rents changed dramatically. In 2021, the per sq m rent for smaller flats became much bigger than that for bigger flat rentals. I explained this change in terms of the reduced motivation for households living in smaller flats to vacate their units and move to bigger flats. This resulted in not only a sharper increase in the prices of smaller flats than bigger flats, but also much sharper increases in smaller flat rents. In September last year, the per sq m rents for Class E flats for Hong Kong Island, Kowloon, and the New Territories were respectively HK$409, HK$313, and HK$236, which were just 92.5 percent, 82.2 percent, and 76.9 percent of those of Class A flats.
This suggests that subdividing the bigger flats into smaller units is indeed very profitable, and explains the proliferation of nano-flats after the imposition of the various new stamp duties that impede trading up activities. As expected, the vacancy rates for Class E flats is much higher, and was 7.8 percent as compared with 3.8 percent for Class A flats in 2021.
Even with the mass exodus from Hong Kong, there is still downward pressure on rents and upward pressure on vacancy rates. It makes economic sense to use what we have instead of building and demolishing the Light Public Housing blocks. Moreover, if we use the existing housing stock, we can improve the lot of the poorly housed much faster.
I am proposing subsidies on accredited housing units including subdivided units. There is no reason to object to subdividing units if the subdivisions are done professionally and in compliance with the building code and Fire Safety (Buildings) Ordinance. This alternative way to help our beleaguered households would be greener, faster, and cheaper. In addition, they would have more choices in terms of locations and would probably be better satisfied.
I am all in support of John Lee’s proactive approach to addressing Hong Kong’s urgent problems. Just as we have needed to be scientific and to weigh costs against benefits in every move we have taken to fight the pandemic, we also need to be scientific and to weigh costs against benefits in our housing policies. I invite the administration’s economists to study the effects of stamp duties carefully, including the work that my colleagues and I have been doing over the years. Stamp duties are taking a heavy toll on the economy. Many people’s livelihoods are at stake. Statistics are cold. But business closures and the loss of jobs hurt, sometimes even more so than abject living conditions.
The author is the director of the Pan Sutong Shanghai-Hong Kong Economic Policy Research Institute, Lingnan University.
The views do not necessarily reflect those of China Daily.