I support the Hong Kong Special Administrative Region government’s initiative to specify basic standards for “subdivided units” (SDUs, short for “rooms subdivided from a flat”). However, I have argued that these basic standards should be truly basic. This means that these flats should be safe and ventilated, and that the tenants should have access to clean toilets and bathrooms. But the government should not assume that all tenants need 8 square meters and require a separate toilet for each SDU. With looser regulatory requirements, tenants can have a higher chance of finding rooms that meet their needs. Some need a lower rent and smaller space; some need a bigger room and can afford higher rent. Some prefer separate private bathrooms. Others can put up with a shared bathroom as long as it is hygienic. I contend that the initial proposal’s specifications for basic housing units are too detailed, bordering on micromanagement, and will end up reducing tenant choice and raising rents, thereby undermining the interests of potential renters.

Some critics say that the idea of basic housing units translates to capitulation to the challenge of putting an end to SDUs. I think there are just two problems with SDUs. One is that they may be unsafe and unhealthy. The other is that tenants are sometimes exploited or ripped off unfairly, as they may be overcharged for utilities such as electricity and water. I applaud the government’s proposed requirement for tenants to have their own utility meters. Installing these meters may be a bit costly, but this is a one-time cost, and the work can be done without disrupting present tenancies. On the other hand, renovation work to comply with the minimum 8-square-meter size, a window, and separate-toilet requirements may not be possible without the current tenant’s moving out, which may be prohibited under the current rules of two years plus two years’ tenancy.

Some critics fear that the requirement for a professional certification of compliance with the new standards for basic housing units will push up rents and have proposed that the government introduce control on the level of the “initial rent”. I would advise that this will go against the laws of the market and simply will not work. An artificially suppressed rent will certainly curtail supply. An acute excess demand will follow. Many prospective tenants will be driven out of the market. The government will have to come in to absorb the spillover from the private SDU market.

Hong Kong authorities said in 2021 that nealy 50 percent of the tenant households in SDUs have already applied for public rental housing (PRH); approximately another 20 percent will become qualified to apply for PRH as they age. What will be left will be those who do not qualify for PRH and those renting on a short term basis. These numbers are relatively small. Deputy Financial Secretary Michael Wong Wai-lun estimated that, of the approximately 110,000 SDUs in Hong Kong, some 70 percent already meet the “basic standards” requirements. He is optimistic that there may not be any shortfall. Secretary for Housing Winnie Ho Wing-yin also said that the present quota of transitional housing targeted at households living in poor housing may be raised to 80 percent. The worry is that transitional housing is just a makeshift arrangement, and is not supposed to be permanent. But the shortfall of supply below demand created by the joint introduction of rent control and quality standards in the private SDU market is permanent, and may even increase. Unless the government gives up rent control and relaxes quality requirements, the growing gap will have to be filled by the government, which is already facing serious fiscal deficits.

The key to reviving the vibrancy of our economy is to foster the spirit of self-reliance. We do need a strong, reliable social safety net that ensures that needy people meet their basic needs

Policymakers in charge of housing policy will be well-advised to note that the laws of the market, human nature as it is, and fiscal sustainability are all facts of life that we will live with, whether we like them or not. Article 107 of the Basic Law requires us to keep our fiscal budget in balance, while Article 108 requires us to independently manage our taxation matters while continuing with the low tax policy previously pursued in Hong Kong. Our low tax rates have been possible only because our government has been able to tap land-based revenues through land auctions, land premiums, rates and land rents, and the profit tax contributions of our developers. While many commentators keep saying that Hong Kong has followed a “high land-price policy”, my reading is that Hong Kong’s high land prices resulted from our low tax rates and our vibrant economy. Our government has never willfully limited land supply to derive a large revenue. If we revive our vibrant economy, and maintain our low tax rates, land prices and housing prices will be buoyant. The key to reviving the vibrancy of our economy is to foster the spirit of self-reliance. We do need a strong, reliable social safety net that ensures that needy people meet their basic needs. Public housing should be part of this social safety net. But public housing that offers far-more-than-basic benefits at low cost will destroy the self-reliant spirit and weaken our competitiveness. Even more serious is that it is not sustainable.

The author is an adjunct research professor at the Pan Sutong Shanghai-Hong Kong Economic Policy Research Institute and the Economics Department, Lingnan University.

The views do not necessarily reflect those of China Daily.