Ho Lok-sang says it is important to screen out investment demand from consumption if public-housing policy is to effectively give needy families homes

The Housing Authority was reported to have recently sold one much-sought-after public rental housing (PRH) unit at HK$565,600 to a sitting tenant. The unit was on the 18th floor of Lei Tung Estate on Ap Lei Chau, and has a usable space of 296 square feet. This was at a huge discount from the price of HK$1.85 million of a similar unit transacted in the previous month, pre-land premium repayment.

Earlier in May, another unit in the same estate sold for HK$2.6 million to a Green Form buyer (pre-land premium repayment), giving its seller a profit of 1,138 percent from the original price of HK$210,000 at which he bought it, back in 2004. These flats had been sold to sitting tenants under the Tenants Purchase Scheme (TPS) announced in December 1997.

Such handsome profits are benefits reserved for those blessed with public rental tenant status. No wonder there is such a huge demand for public rental housing.

Wouldn't it be far better, if those who seek to profit are screened out, so that the socially costly PRH units can be reserved only for those who have desperate needs to get relief from substandard and even dangerous housing?

Chief Executive Carrie Lam Cheng Yuet-ngor has just announced a "Starter Homes" scheme in her Policy Address. In order to screen out those who seek to profit, there is the suggestion that these homes should be subject to stricter resale rules, essentially through extending the required years of occupancy before the unit can be resold.

Rather than requiring more years of occupancy before a flat can be resold, I would advise requiring PRH or Starter Home buyers to (1) actually live in the units; (2) not to own any property directly or indirectly through a shell company. I would allow the units to be resold any time, but the requirement is that they can only be resold to those who qualify to apply for PRH tenancy or for Starter Home purchase. I would also offer an opportunity to buy a Starter Home, over the life time, to every married couple at least one of which is a Hong Kong permanent resident, at an average price of 10 times median household earnings among non-PRH tenants. These provisions will contain capital gains in the second-hand market, and will drive out the profit-seekers from the queue of purchasers.

The case for screening out investment demand from consumption demand is very strong. If those seeking profit are competing with those who genuinely have a need for public housing because their current housing conditions are unsafe or very unhealthy, the latter will have a longer wait before being allocated a flat.

Given that the replacement cost of public housing has been quoted at HK$1.2 million or more excluding land costs, it is difficult to understand why the Housing Authority is still selling PRH units at deep discounts to sitting tenants who otherwise may not even qualify to be on the queue for PRH application.

It is also difficult to understand how restricting resale only to those who have kept their subsidized homes for a sufficiently long period will help the cause of efficiently utilizing our valuable resources.

We should expect that the prospect of huge gains on resale would prompt the owners to keep their units even if they have to be left vacant. That would be extremely wasteful. If owners are allowed to rent them out, the investment motive would again likely overshadow the consumption motive. Those with genuine and urgent housing needs will have to wait longer in the queue.

There is the argument that if Green Form applicants buy a Starter Home, or buy into a TPS unit, they would vacant their public rental housing, thus benefiting those in the queue. Their wait could then be reduced.

But we must not forget that we are at the same time attracting more people to join the queue. Although there are requirements that must be met before people are qualified to join the queue for PRH or Starter Home housing, it is well known that people can under-report their incomes and assets, and that people are also trying hard to keep themselves qualified by giving up salary increases. If the lure in terms of prospective profits is bigger, the incentive to cheat will also be higher. Even if everybody is honest, the consumption needs for public housing or for the Starter Homes do vary from household to household. It is unwise to maintain strong investment incentives while opening up the PRH or Starter Home housing for application.

I would advise against the Housing Authority selling any more units to sitting tenants under the TPS scheme, which has already been terminated as announced by Michael Suen Ming-yeung, then secretary for housing, back in November 2002.

We need to realize that if there is so much to gain financially from the PRH tenant status, there will never be enough PRH flats to go around. There is nothing we can do with the TPS units already sold to sitting tenants, but the Housing Authority can and should stop selling any more units to sitting tenants.

(HK Edition 10/17/2017 page9)