Date
24 November 2017
Greedy landlords are taking advantage of the absence of rent regulation in Hong Kong to squeeze what they can out of their tenants, many in subdivided flats. Photo: AFP
Greedy landlords are taking advantage of the absence of rent regulation in Hong Kong to squeeze what they can out of their tenants, many in subdivided flats. Photo: AFP

Govt should acknowledge benefits of rent control

Undersecretary for transport and housing Yau Shing-mu wrote an article, published in major local newspapers Jan. 2, in which he detailed the shortcomings of rent control, citing overseas examples.

Although Yau did use the experience of certain overseas countries to support his arguments, he chose to turn a blind eye to the success of Germany and the Netherlands in regulating the rental market.

In the face of soaring rents and strong public expectations, Yau remains narrow-minded about rent control and is unwilling to repair a rental market that is already in a disastrous state, allowing tenants of subdivided flats to continue to wait and suffer.

Yau’s main argument against implementing rent control is that it might lead to a series of “side effects”.

Yau, Secretary for Transport and Housing Anthony Cheung Bing-leung and Chief Executive Leung Chun-ying all argued that the implementation of rent control might lead to a decline in the number of flats available for lease on the open market.

However, their argument failed to take into account the extra costs property owners have to cover if their properties are left vacant for an extended period of time, such as the cost of maintenance and the opportunity cost of not renting out their flats.

Moreover, property owners could incur even more extra costs if the government imposes a property vacancy tax, a value-added tax or even a capital gains tax on empty premises.

All these measures have proved to be effective in other countries in minimizing the number of empty properties.

Why didn’t Leung put them into his policy address?

Using figures from the Rating and Valuation Department, the government might argue the vacancy rate in the rental market is extremely low.

However, such figures remain highly controversial, and the government is still unable to explain why there are far more flats than households in Hong Kong.

Moreover, if the vacancy rate is so low, then why is it unwilling to impose a tax on empty properties? Is it because the administration is so afraid of antagonizing big landlords and powerful developers?

Yau also argued in his article that tenants were not better off even when rent control was in force in the past, because landlords tended to charge them for electricity, water and town gas consumption beyond normal levels, and some landlords demanded a higher down payment from prospective tenants.

However, Yau seems to have overlooked the simple fact that such unfair practices have become commonplace among landlords of subdivided flats, years after rent control was lifted.

A recent survey found 99 percent of tenants are overcharged by their landlords for electricity and water; some are even charged more than double the rate they should pay.

All these perils are the result of not having rent control!

Earlier, Chu Tak-ho, a member of the shadow Long Term Housing Strategy Steering Committee, wrote an article, published in the Hong Kong Economic Journal, in which he outlined some of the strict measures the Dutch government imposed prohibiting landlords from overcharging tenants for water and power.

For example, the electricity and water bills must be separated from the rent under the law; and landlords are not allowed to charge tenants more than 20 percent above the original price for furniture and home appliances.

Yau also argued that rent regulation might also lead to a situation where landlords will choose their tenants and demand a higher rent in the initial contract.

This argument is again mind-boggling, because even without any rental restrictions, landlords are already choosing the tenants they want and trying to rent their properties out at the highest possible rate.

Such practices are universal in rental markets around the world, and rent control has nothing to do with them.

The “side effects” that Yau and the administration continued to stress are in fact precisely the undesirable results of not having rent control!

The government’s propaganda denying the benefits of rent control remind me of the controversy over setting a minimum wage several years ago.

At the time, the administration kept badmouthing the idea of imposing a minimum wage and warned the public of the scenarios of rising unemployment, the closure of small businesses, employers taking advantage of the law, and grassroots workers being penalized if the policy were put into effect.

However, as we now can see, none of these scenarios happened after the minimum wage was implemented.

It’s perfectly fine for the government to cite foreign examples to support its own arguments, and there are certainly examples of failure and of success in implementing rent control in other countries.

What is important is that the government should not focus only on the downside of the policy but should instead give us the whole picture and let the public decide.

For example, rent control in Germany and France has brought about a lot of positive results, such as stabilizing rents, reducing the number of vacant flats and satisfying the housing needs of low-income families.

In fact the German and French examples can provide a lot of insight for us in our efforts to make it possible for the rental market to alleviate the burden of housing costs on working-class families.

Perhaps we have already missed the best opportunity to introduce rent control, as rents have risen a whopping 60 percent in the past few years, and the public is already feeling the pinch.

What rent control can do now is prevent the situation from getting worse and provide vulnerable tenants across our city with basic protection that is long overdue.

This article appeared in the Hong Kong Economic Journal on Feb 3.

Translation by Alan Lee

– Contact us at english@hkej.com

/FL

A member of Shadow Long Term Housing Strategy Steering Committee, a non-governmental organization.

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