25 June 2019
The Urban Renewal Authority should help repair rather than demolish old residential buildings to enlarge, not shrink, the pool of affordable housing. Photo: HKEJ
The Urban Renewal Authority should help repair rather than demolish old residential buildings to enlarge, not shrink, the pool of affordable housing. Photo: HKEJ

How private flats at affordable rents can be increased

In the Long Term Housing Strategy that the Transport and Housing Bureau released recently, the government argues that only by increasing the supply of housing can the current shortage, skyrocketing property prices and surging rents be properly resolved.

The administration proposes to build, over the next 10 years, a total of 200,000 public rental flats, in addition to the 280,000 units to be built in the private sector.

However, given that there are already 260,000 applicants on the waiting list for public rental flats, and the number is increasing every year, the pace at which the government is building flats is lagging hopelessly behind existing demand.

Moreover, the home price index has risen by a whopping 150 percent since 2009, and our city is facing its worst homeownership affordability crisis ever.

And not only are potential homebuyers feeling the pinch, but the shortfall in affordable rental units is also particularly troublesome, as low-income renters struggle to find a place.

To ease demand for housing, there are, in fact, viable alternatives — which our government seems to have overlooked — to building more and more houses.

One of them is to foster the private rental market.

The private rental market is an important part of our housing system and provides flexibility and choice for many families, but it has failed to serve the housing needs of low-income people in recent years.

Rents in Hong Kong have risen by 70 percent since 2009, vastly outpacing the income growth of the average family.

On one hand, more than 81,000 households are enduring poor living conditions in subdivided flats.

Ironically, on the other hand, the rental vacancy rate has hit a record high of 12.5 percent, which amounts to about 180,000 flats.

It is time for our administration to adopt new measures to tap into this enormous reserve of vacant flats by fostering the private rental market to meet the urgent housing needs of low- to medium-income families.

These measures may include:

1. Offering tax incentives to landlords to encourage them to rent out their vacant properties.

2. Providing allowances or subsidies to landlords to repair or renovate their properties on the condition that their flats must be put up for rent on a long-term basis.

3. Making use of the MTR’s redeveloped land and above-station property projects to provide flats at affordable rents.

4. Tightening regulations by introducing a windfall tax on properties sold, to encourage the renting out of vacant properties, and rent control.

In fact there are local non-governmental organizations that have been working closely with landlords of aging flats and low-income tenants, mostly single-parent families, to ensure a good match.

One of the NGOs, called We Need Light, has already helped 100 single-parent families to rent flats from more than 50 warm-hearted landlords at below market rates.

It is also worth looking overseas for examples that may provide some ideas for our government in stimulating the private rental market.

In Germany, the government encourages landlords to lease their properties at below market rate by providing tax incentives and tax allowances.

More importantly, the government supports NGOs that match landlords and tenants to make sure they both get the best deal.

These NGOs are also charged with the responsibility of overseeing the entire rental procedure and managing day-to-day matters arising from the rental deals, to make sure the interests of both sides are protected.

The German government also tightly controls mortgage rates and imposes value added tax at a 25 percent rate on properties sold to encourage homeowners to rent out their flats instead of selling them.

In France, the authorities help landlords renovate their aging properties by providing subsidies and tax rebates, on the condition that their properties be rented out to low-income families over the next nine years at a fixed rent.

In the United States and Australia, the governments form partnerships with private developers by providing low-interest loans and selling land at low prices for them to build apartment buildings restricted to budget rental units.

Meanwhile, Hong Kong has more than 6,000 apartment blocks that are over 50 years old.

The Urban Renewal Authority’s policy of tearing down these buildings and turning them into lucrative luxury homes not only deprives average citizens of the opportunity to resettle in their old neighbourhoods but also greatly reduces the supply of cheap accommodation.

The URA should help repair rather than demolish these old premises to maintain a steady supply of affordable homes for rent.

In the long run, our government must provide incentives for property owners to lease their flats at reasonable rents for a relatively long period of time.

Based on the experience of countries overseas, tax allowances, subsidies, tightened credit, value-added tax and extra stamp duty are among the options to encourage landlords to keep their flats and rent them out.

Eventually, it is inevitable that the government must consider reintroducing rent control to balance the interests of landlords and tenants.

This article appeared in the Hong Kong Economic Journal on Dec. 29.

Translation by Alan Lee

– Contact us at [email protected]


The writer is a policy researcher

EJI Weekly Newsletter

Please click here to unsubscribe