The Policy Address unveiled a pilot scheme for existing tenants and those applicants who have passed the vetting process and are eligible to be allocated a flat ("green form" applicants) to buy new public rental housing. The media has been quick to nickname this scheme the "Green Housing Ownership," (GHO) which vividly describes the nature of the scheme. It has naturally triggered a new wave of discussion and controversy.

Frankly speaking, any new housing policy initiative will attract much controversy, simply because housing in Hong Kong is an old and thorny issue. To further complicate things, subsidized housing involves public resources so the idea of the GHO was to be expected. However, this is no reason to be critical of the new GHO scheme. On the contrary, this is a new housing policy initiative; there should be an attempt to see if the new scheme works. To criticize it without offering any other suggestions or recommendations would be unhelpful. Attacking the shortcomings of any scheme is easy, the difficult part is to improve it and make it work. Therefore, in discussing the GHO Scheme, the central premise should be how to rationalize the details during the implementation of the scheme. The most important thing, of course, is pricing.

GHO is a kind of subsidized housing, so pricing should be in line with existing principles - otherwise there will be the issue of the misuse of public resources. The pricing issue is complex and may include many factors.

First of all, the first pricing principle should ensure that the Housing Authority is not selling GHO flats at a loss. GHO flat buyers are buying subsidized flats from the Housing Authority. Therefore, the GHO can be seen as a form of Home Ownership Scheme, although there are many differences. The key point, however, is that people will perceive this as another form of Home Ownership Scheme, albeit at a lower level.

But this arrangement differs greatly from the previous Tenant Purchase Scheme (TPS). Under the TPS, existing tenants were allowed to buy the public rental housing units. Since the TPS buyers had lived in their units for some time, there was a legitimate reason to give the buyers a larger price discount. With property prices currently soaring, we simply cannot duplicate the TPS system of pricing with the GHO scheme. Also, the different backgrounds and quality of the new public housing needs to be considered. These all lead to differences in pricing.

Hence, the pricing of GHO cannot be less than the construction costs of these units. From the point of view of GHO buyers, lower prices will be better. However, if the Housing Authority makes a loss on GHO flat sales, then it will not be an efficient use of public resources. The general principle is that the sale price of GHO flats should not be lower than the cost of construction; otherwise, this would erode the financial resources of the Housing Authority.

The second principle is that the pricing mechanism should not deviate from that of the existing Home Ownership Scheme (HOS).

GHO is different from HOS, so it is not reasonable to duplicate the HOS pricing mechanism. If the pricing of GHO and HOS were the same, the GHO would not prove attractive. GHO is a form of subsidized housing. The GHO uses public resources to subsidize residents of public rental housing so they can own a home. If the pricing of GHO differs substantially from that of HOS, people will have a different reaction. Therefore, the Housing Authority should devise a pricing mechanism similar to that of HOS, but it will not be sensible for a complete duplication of pricing arrangements.

The third principle is about the content of the pricing arrangements. Rather than selling all the buildings in a housing estate, as a pilot scheme, the GHO aims to sell one building to test the scheme. Because of this, the buyers of GHO need to take care of surrounding facilities. This will be built into the pricing mechanism. This needs to be spelled out clearly with regards to the pricing of GHO flats, otherwise there will be many disputes over maintenance problems and other costs involved.

Difficult issues over the pricing of the GHO scheme are not limited to the ones I have mentioned. And the resolution of these issues is not a simple matter. The Housing Authority clearly has a lot of work to do.

(HK Edition 01/29/2015 page1)