In recent weeks, with home prices in Hong Kong surging rapidly, new calls for a relaunch of the Home Ownership Scheme (HOS) are being made by various political parties, and notably by Anthony Cheung, a member of the Executive Council and a member of the Housing Authority.
Secretary of Transport and Housing Eva Cheng expressed caution and explained that relaunching the HOS housing is "a big move", and advised that any such decision must be carefully considered in light of developments in the overall economy.
The chief executive also argued that home prices are still affordable, even though housing in prime sites, particularly those on Hong Kong Island, may indeed be out of reach of many people, including well-heeled professionals.
I have always been in support of HOS housing construction, even though I was very critical about the Tenants Purchase Scheme (TPS) that was launched in December 1997. I argued that the TPS, by offering sitting tenants in public housing estates the opportunity to buy their rented units at deeply discounted prices, effectively discouraged those among public housing tenants who could afford private housing and HOS housing from buying such housing. Because they had been very active in the private housing market in the years prior to 1997, their sudden disappearance in the private housing market directly affected transactions and was a prime reason behind the collapse in the housing market in 1998.
I was so desperate that I gave many talks on the gravity of the situation and urged the government to reverse the policy, but to no avail. Yet, I have always held that HOS housing is a fine program, and that its presence had nothing to do with the collapse of the housing market in 1998.
The HOS housing program started in 1978 and had always been heavily oversubscribed and had enabled the Housing Authority to accumulate a handsome profit with which to cross-subsidize the construction and maintenance of public rental housing. The HOS housing program had been with us "through thick and thin", with little adverse effect on the housing market at large. The HOS housing program had been tested through the second major oil crisis of 1979, the deep global recession of 1981-82, the tumultuous years of political uncertainty ahead of the Joint Sino-British Declaration in 1984, the banking crises of the 1980s that led to the Banking Ordinance of 1986, the collapse of the dotcom bubble in the early 2000s, etc., without ever noticeably affecting housing prices or the profitability of Hong Kong's developers.
Only in 1998, immediately after the launch of the TPS program, did Hong Kong's housing market and the Hong Kong economy get into serious trouble. I argued it was not due to the Asian Financial Crisis. It was homemade - a result of the badly conceived TPS program. Only after the TPS program was effectively scrapped in November 2002 did the housing market and the economy come back to life.
The problem with TPS was that it kept potential buyers of private housing staying in public housing (even though privatized). The HOS program, on the other hand, lured tenants who could afford it out of public housing.
Because HOS buyers have to repay the land subsidy when they eventually sell their homes there was not much of a gift, even though HOS housing allowed people to buy homes at a discount. The pricing of TPS, however, involved a huge gift to sitting tenants, which these tenants may hardly deserve.
The HOS housing program produced a kind of housing that private developers have little incentive to produce. These days developers "value load" their products and market them as "luxury homes", regardless of the location. They do so because luxury homes carry price tags that afford them handsome profits. Unfortunately, many people cannot afford to buy such homes.
Thus HOS housing fills a true need. It offers people with a modest income an opportunity to own their homes, and help shorten the queue of people waiting to be assigned a public housing flat.
From my analysis and considering the long history of HOS housing since 1978, there is little fear that reconstruction of HOS housing would adversely affect the housing market.
Moreover, trying to use HOS supplies or any other means to manage housing prices is misguided. The HOS program aims at helping those who do not qualify for public housing and who cannot afford the prices of the "luxury homes" that developers choose to build to buy their homes. In the past thirty-odd years it has demonstrated its unique social value, and I am sure it can continue to serve Hong Kong well.
The author is director of Centre for Public Policy Studies, Lingnan University
(HK Edition 10/30/2009 page1)