Cheaper homes? Just wait for interest rates to go up!

On the conclusion of the government-sponsored great property debate, it would be fair to ask: What's the point of such a grand exercise when the government, its numerous advisers and politicians agree that increasing land supply is the only way to bring down property prices.

Since it's beyond the government's capability to influence property demand, and all the administrative measures introduced so far have proved to be ineffectual, raising supply seems to be the only option available to cool the market frenzy.

This brings up another question: Why is everybody saying that home prices in Hong Kong are too high when there's no shortage of buyers who're eager to snap up apartments in newly completed projects at any price demanded by developers as soon as they are put up for sale?

It seems the developers are right in saying that the local demand for property is "inelastic". This means that increasing the supply is not going to depress prices. Instead, it would just bring in more buyers.

Economists are quick to note that the demand for property is driven mainly by the abnormally low interest rates and easy credit. As prices continue to go up, more and more people are buying properties for capital gain. Their so-called "Hong Kong dream" is to make money on their property investments.

That explains why so many people are willing to pay up to HK$3 million for a "nano" apartment with an average floor area of merely 18 square meters. Apartments this small are not going to bring about much improvement in the quality of life for anyone. People willing to spend that kind of money can easily afford to rent larger and nicer places to live in.

Images of families living in squalid subdivided flats are commonly used by the government and media to illustrate the evil of high property prices. There's already a well-established policy for solving the problem — building more subsidized housing for rent at below market rates to the neediest families.

Many social analysts lament that many young people feel frustrated because they don't see any hope of owning a home. It should be made clear to these young people that home ownership is not an entitlement. They have to, like young people of previous generations, earn their homes.

The government is not without options. Instead of going all out in search of land, it can just sit back twiddling its thumbs while waiting for interest rates to climb to trigger the long overdue, downward property cycle. It may not have to wait too long for that to happen.