The Hong Kong Special Administrative Region’s new housing policy, if set right, will significantly improve the city’s fiscal position and reinvigorate its economy.

I have introduced HOS II, the new home ownership scheme (HOS), in previous articles in this column. Today I will recommend PRH II, a new form of public rental housing (PRH).

Hong Kong’s public rental housing program has traditionally played a very important role in socioeconomic development. In the early days of Hong Kong’s economic take-off, manufacturers were able to pay competitive wages to workers because they could sustain themselves and raise their families on modest wages, benefiting from very low rental costs. This played an important role in Hong Kong’s success in developing industries such as textiles and garments, toys and watches, plastic goods and electronic products.  

In April 1987, the Hong Kong Housing Authority proposed the Housing Subsidy Policy, which was intended to safeguard the rational allocation of public housing resources. The policy triggered fear among public housing tenants, who worried that they might not be able to continue to stay in PRH because their incomes and wealth could breach what was permitted. Many PRH tenants bought private housing. Let me cite the Final Report on the Mid-term Review of Long-Term Housing Strategy published in June 1994.

In the Mid-Term Review Report, it was revealed that about 13 percent of PRH tenants, or 74,000 out of 580,000 households covered by a survey in July 1993, owned private domestic properties. Another survey on tenants in North Point Estate showed that 18 percent of them owned private domestic properties in the urban areas alone. Some one-third of these households owned more than one property and a small number even owned up to five properties. An independent exercise revealed that PRH tenants accounted for as much as 24 percent of all purchases of private flats by local individuals in the period between October 1992 and March 1993. The survey results point to the prevalence of PRH tenants among private property ownership.

It is not surprising at all that PRH tenants could be so active in the private housing market. A University of Hong Kong student, named Mariko Watanabe, in her M.Phil thesis, found that public housing tenants had far bigger savings than private housing tenants, thanks to low rent. Hong Kong’s apparently unstoppable housing prices were in part fed by the incessant inflow of PRH tenants’ money.

It turns out that in practice the Housing Subsidy Policy after 1997 became extremely generous to well-off families. Although the Housing Authority announced that PRH tenants who owned any domestic property in Hong Kong would have to vacate it, PRH tenants with incomes less than five times the PRH income limits could continue to occupy the PRH flats, and they also had priority to buy HOS flats at greatly discounted prices. This goes against the spirit of the Housing Subsidy Policy, which aims to ensure that valuable public housing resources should be reserved for those who cannot afford to buy or to rent private housing.  

The current Housing Subsidy Policy is extremely damaging to the public interest and must be revised.

In Singapore, it is clearly stated by the Housing and Development Board (HDB): “Rental housing is heavily subsidized by the government and caters to households who cannot afford to buy HDB flats and do not have other housing options. As the number of rental flats under this scheme is limited, you have to meet the eligibility criteria in order to renew your tenancy term.”  

In Hong Kong, we tolerate those who do not meet the eligibility criteria, and far too excessively.

I propose that we continue to tolerate households with household income up to twice the waiting list income limit, but that they should pay double rent. In addition, they should vacate their flats if their income exceeds twice the waiting list income limit. I also propose that in the future public housing should not be built on expensive land.

The revised policy, PRH II, will immediately benefit those waiting in the queue, as many well-off tenants will have to vacate. This is a much more effective way to help needy people than the light public housing policy and far less costly.

The revised policy will drive many well-off PRH tenants to buy private flats. This will revive the city’s weak housing market and thus lend some strength to our fragile economy. Developers will make more profits and pay more profit tax. They will also buy more land, and that will benefit our beleaguered fiscal position.

The only complaints will come from the well-off PRH tenants. But they need to understand that the proposed PRH II is already far more generous than Singapore’s policy. The Singapore economy is far more vibrant than ours, because it upholds the self-reliant spirit.

Although PRH should be situated in accessible locations well served by public transport, locating it on expensive land will hurt Hong Kong’s fiscal position. According to the self-reliant spirit, those who want their desired locations should strive to earn the purchasing power so they can afford to live there. Singapore’s labor force participation rate is 68.2 percent; Hong Kong’s is 56.9 percent. Hong Kong’s generous social welfare and public housing benefits may have played a role in our low labor force participation rate.

The author is former director of Pan Sutong Shanghai-HK Economic Policy Research Institute, Lingnan University, and adjunct professor, Education University of Hong Kong.

The views do not necessarily reflect those of China Daily.