BACK

POLICY PAPER

MORE PAPERS

Letter to Secretary for Housing - Response to "Homes for HK People"  The Way Forward"

15 May 1997  

Mr Dominic S.W.Wong, OBE, JP  
Secretary for Housing  
Housing Branch, Government Secretariat  
Suite 905-909 Citibank Tower  
3 Garden Road, Hong Kong  
  
Dear Mr Wong,  

We are writing to express our disappointment with the long term housing strategy review titled: Homes for Hong Kong People: The Way Forward. We are now in the midst of a housing crisis which the document fails to address.  

Although you have clearly indicated in the Preface of the document that it is a strategic document not intended to tackle short-term problems, we felt that it lacks a strategic vision and has failed to address many important social and economic implications of a long-term housing strategy, including:  

• Qualitative aspects of housing goals, 
• Implications of high housing prices on the wider Hong Kong economy,
• Social implications of housing costs and the de-stabilising effects of high housing prices, 
• The risks and destructive effect of a financial bubble burst caused by runaway housing prices. 

1. Qualitative goals:  
We felt that qualitative goals are distinctly missing from Chapter 2 of the Document. The supply of 80,000 flats per year is a clear quantitative goal. However, has consideration been given to what the people of Hong Kong would like our housing standards to be? What are the qualitative goals for each sector of the population? What is "adequate housing"? Have the aspirations of the middle class been taken into consideration? Have the housing standards and living environments of comparable economies been looked into and set as benchmarks? Singapore said that they would like to become the Switzerland of the Far East? What do we want to be?  

2. Government-driven inflation:  
The cost of rental and purchased housing has been rising way above the rate of inflation in the last ten years. It is not uncommon for middle income family to spend 50% of their income on their home mortgage. The Government-compiled consumer price index fails to fully reflect this cost: one of the major and underlying contributors to inflation in Hong Kong must be the rapidly rising housing cost.  

3. Implications on the wider economy:  
Although housing is widely perceived as a form of investment and an inflation protector in Hong Kong, housing is widely recognised as a consumption product and a cost of production to economists. While some more developed economies such as the United States of America have adopted economic policies to keep inflation in check and as a result transform themselves into highly competitive economies, Hong Kong has been ignoring the effects of its rising land and housing costs to the medium and long-term development of the economy. 80% of Hong Kong's wealth is now generated by the service sector and the biggest cost factor of such an economy is people. Unchecked housing costs and therefore people cost, coupled with the weak performance of much of the private sector in investing to increase the productivity of its people, will make Hong Kong a very poor competitor amongst our neighbouring countries.  

4. Housing as a form of taxation:  
Hong Kong prides itself as an economy that has low and predictable taxation policy. However, the Government raises substantial revenues from the sale of land, of which it is the monopoly supplier and thus able to keep land prices high. The resulting high costs of private housing and commercial and industrial properties are now widely recognised as a form of taxation. We suggest that the Government should review whether this form of taxation is equitable and beneficial to Hong Kong as a whole; and whether this system of land and housing development constitutes an inequitable transfer of wealth from the weaker sectors of the economy to the powerful property developer and property speculator sectors, as well as to the Government itself.  

5. Financial bubble burst and the destruction of a stable middle class:  
Unchecked housing prices could only lead to a financial bubble burst. This will turn a relatively hard-working middle class to despair. Unrealistic housing prices will also destroy aspirations and hopes for the next generation of citizens of Hong Kong.  

6. Polarisation of the Have and Have Not:  
Unchecked housing prices will also polarise society. Those who are not lucky enough to own properties will be isolated and embittered. For this reason, the Government having intervened in the housing market once through its land disposal programme to keep house prices high, has to intervene a second time through its enormous public housing programme to rescue those who cannot afford those high prices. This creates a "poverty trap", in that the gulf between the cost of PRH and the cost of private sector housing is too great for most PRH tenants to bridge. So the Government has to intervene a third time, creating a bridge out of its HOS and "sandwich class" schemes. We feel that the fact that households earning up to HK$60,000 a month need welfare to acquire housing is absurd and shows the depth of the housing crisis we are now in. This crisis, and the social polarisation it gives rise to, is to a great extent the result of Government policy.  

7. Individual measures versus co-ordinated policies:  
While we support all of the individual measures mentioned in the document, such as using computer models to predict housing demand, finding ways to increase land supply and speeding up the redevelopment of existing sites, and we believe that these measures will help increase the supply of housing to all sectors of Hong Kong in the short and medium term, we also believe that housing and land supply should be co-ordinated at a higher policy making level. Policies on taxation, land supply release, planning approved process and infrastructure development have to be co-ordinated if the housing crisis is to really be tackled.  

Mr Wong, please do not get us wrong. We are highly supportive of the recent measures and resolve shown by the Government in tackling property issues. We also support the Government initiatives in consulting the public on such an important issue. However, we feel that the strategy needs to be developed much further if it is to address the problems effectively.  

We hope the Government will also take the factors we list above into account and we hope our comments have been constructive.  

Yours sincerely,  

Dr. Patrick Shiu  
Chairman