In the wake of Financial Secretary Paul Chan Mo-po’s budget speech, I wrote an op-ed in which I suggested that Hong Kong’s housing policy should now focus on improving the quality of housing for Hong Kong people instead of increasing supply. I would like to explain the idea in greater detail.
I had noted that there was a notable decline in Hong Kong’s population. While the total number fell only 1.56 percent from year-end 2019 to year-end 2021, the decline for the group aged 20 to 39 is much bigger, ranging from 5.4 percent for those aged 35 to 39 to 15.2 percent for those aged 20 to 24. This is the group that forms the basis for household formation and childbirth. This also consists mostly of economically active people who are in a position to buy homes.
We should encourage our developers to build flats that are superior to public rental housing and Home Ownership Scheme housing
UK government data shows that there have been a total of 103,900 applications for the British National (Overseas) route for immigration to the UK in 2021 since its introduction on Jan 31, last year. A survey conducted in January this year by the Hong Kong General Chamber of Commerce shows that the brain drain is indeed affecting the operations of many of its members, with loss of manpower comprising professionals particularly in engineering and finance. The net outflow was no doubt in part aggravated by the flight bans and other travel restrictions into Hong Kong, but we nevertheless have to be prepared for the possibility that attracting talent may not be as easy as first thought, in part because of the intimidating housing costs in Hong Kong. We have to note that under current policy, new immigrants are not entitled to apply for public housing including Home Ownership Scheme housing, and, before they gain permanent resident status they are also required to pay the Buyer’s Stamp Duty should they want to buy a flat.
Although demographics are notoriously difficult to predict, and there is a possibility that the recent population declines are entirely transitory, there is a case to lift the applicability of the Buyer’s Stamp Duty for newcomers who have chosen to work and live in Hong Kong. The reasons are entirely compelling: Today the competition for talent is extremely keen. Treating those who come to Hong Kong to work as alien and subjecting them to a hefty stamp duty undermines our ability to attract talent, and is unfair to those affected. After all, they are not speculators who are looking for a short-term capital gain and should not be punished.
There is an equally strong case to focus more on improving the quality of housing for Hong Kong people than on increasing the number of units. It is heartbreaking to witness the proliferation of “nano flats” in the last decade. It is heartbreaking to see how many middle-class people have to put up with a tiny living space even after spending a fortune to become a homeowner. Compared to those who qualify for public housing, their incomes are high, and they typically have to pay taxes. But homes with a livable space are unaffordable, and many do not want to keep paying rent. After all, they will have to retire one day. Retiring in Hong Kong without owning a flat is a nightmare.
What do I mean by focusing on improving the quality of housing for Hong Kong residents? I mean that the special administrative region government should provide sufficient number of affordable homes that meet basic living requirements in terms of safety, hygiene, and space. These may be public rental housing for those who cannot afford to buy or who prefer not to buy, or may be HOS housing. Unsafe and/or unhygienic subdivided flats will have no place in Hong Kong. Subdivided flats that meet the requirements need not be banned, but those who live there must choose to live there. Not like now when those who live in subdivided flats have little alternative. I should stress that these flats only meet basic standard requirements, so that those who want to live in better housing have to go the market route, i.e., rent or buy in the private market.
We should encourage our developers to build flats that are superior to public rental housing and Home Ownership Scheme housing. We should abolish the Special Stamp Duty to kick start the home trading-up process. The SSD was introduced in November 2010 as a “demand management” tool to curb speculative demand. This it has indeed achieved, as the number of homes bought and sold within the first two years (since Oct 27, 2012, this has been extended to three years) dropped to a trickle. However, trading-up activity was dampened severely. As a result, the supply of existing homes was significantly reduced leading to a significant rise in the prices for starter homes. Developers from then on reduced the supply of larger flats and began to produce many tiny rooms.
The evidence to all this has been presented in several papers jointly co-authored by my colleagues and myself in peer-reviewed journals. Abolishing the SSD now and slightly amending the BSD will have noticeable stimulating effects on the economy. As turnover rises, so will activities in legal, financial and accounting services, retail sales, transportation services, and home renovation work.
The author is director of Pan Sutong Shanghai-HK Economic Policy Research Institute, Lingnan University.
The views do not necessarily reflect those of China Daily.