Since the reunification of 1997, Asian Finance Crisis and Global Financial Tsunami have hard hit Hong Kong in turn, leading to pendulum swings in the Government’s economic policies. Housing is a case in point. It has swayed from a policy target of 85,000 units (per annum) to indefinite suspension of homeownership programme and substituting regular public land auctions by the “application list” system. These measures have stabilized the property market, but only at the price of extreme policy swing from advocating to suppressing housing supply. Yet, how could the housing market rehabilitate to good health if the current policy of restrictive supply persists despite economic recovery?
According to official figures, the supply of new housing units ranged from 26,000 to 31,000 a year between 2000 and 2004. Supply fell to 17,000 in 2005 and further to only 9,000 in 2008. Apparently, the significant drop is attributable to the replacement of public auctions by Application Lists. When housing demand picks up along with recent revival of the economy, the “application list” system has become an unduly prohibitive factor. Developers have been complaining against inflexibility of the system in that it prohibits due supply of government land. In the past seven months, only one small site on the “list” was successfully “applied” for being put up for sale although housing price was surging. Today, I am not intended to debate on demerits of the new system in lieu of public auctions, but I would caution that supply shortage would only deteriorate if the Government fails to redress land unavailability promptly.
Market figures show that the prevailing housing price is close to that of November 1996. Let us recall the situation then. Housing demand was strong despite surging prices, but price hikes in turn deterred potential buyers. It was a paradox. Even young graduates were wondering if they would ever save enough money for the down payment. Homeownership is the basic aspiration of the people. All families, particularly couples who are about to get marry, are looking forward to purchasing their homes. When people find homeownership becoming unreachable, grievances would inevitably arise.
With the US adopting quantitative easing measures to revive its economy, the dollar is at risk of a prolonged depreciation. In view of the linked-rate system, the inevitable depreciation of the Hong Kong dollar in tandem is becoming a cause for concern. As housing prices might go up further, social grievances would also intensify.
It is apparent that review and modification of housing policy are long overdue but the Government has been hesitant in taking determined actions. Perhaps, the Government’s concern is that an undue increase in housing supply would cause a fresh round of price collapse if there were another setback in the economy. And, the Government would have to take the blame. I share the Government’s concern and caution.
However, it is equally precautious to mitigate the potential price hike in medium- and small-sized flats before it is too late, as a means of maintaining a healthy property market.
I shall ask the Government to consider resuming the Homeownership Scheme (HOS). The Government says that HOS and private housing are two distinct markets and that resumption of HOS would not suppress rising private housing prices. I disagree. HOS would not only satisfy the aspiration of young couples and working class families but also help rebalance demand and supply in housing market. For HOS buyers who are public housing occupants, they would surrender their flats for reallocation to applicants in the queue and help shortening it. For other buyers, they would help alleviate demand for medium- and small-sized flats in private housing. As long as the Government remains cautious in the choices of location and quantity, there are merits to resume HOS.
Meanwhile, the Government says that the Housing Authority and Housing Department are looking into means of revitalizing the secondary market of HOS flats. These flats constitute a large pool of medium to low price housing supply. There are some 300,000 HOS flats in total, of which about 220,000 units would be available in the open market at a price below HK$2 million, upon full repayment of land premium. Lately, academics have put forward an innovative idea on revitalizing the HOS secondary market. Their proposal is to allow sale of HOS flats to eligible buyers without first repaying the land premium in full. This would have the benefits of helping the working class to become homeowners but preventing HOS flats from being turned into private housing, thereby adversely affecting the market.
I now turn to the “application list” system as a policy tool. Its undesirable impacts on the housing market are becoming evident. It is time to review the existing policy goal of restrictive land supply. I am convinced that even if the system were to stay, its mechanism should be overhauled in order to assure land availability and prevent acute imbalance in demand and supply. Furthermore, public land auctions should be resumed, but on unscheduled basis, with a view to meeting market demand on the one hand and avoiding oversupply on the other.
Mr President, Hong Kong is a place that subscribes to free market doctrine. Any government policy that is overly restrictive in land supply would only ends up with further distortions of the market.