Tung Chee-hwa’s failed attempt to build 85,000 flats a year from 1998 was not meant to boost the profits of property developers as many might have thought.
In fact, it was a bold experiment to reduce the government’s over-reliance on land sales as the main growth engine of the economy.
The policy collapsed due to poor formulation and execution, leading to the biggest crash in the property market in Hong Kong history.
But Tung has not learned his lesson.
Ten years after he stepped down as chief executive, his Our Hong Kong Foundation is pushing a radical proposal which appears to be an enhanced version of the so-called “85000 Policy”, purportedly to boost home ownership to 80 percent of the population.
It’s like trying to help a drug addict clean up by giving him more methadone so that he has the energy to do it.
With a US interest rate hike, coupled with China’s slowing economy and a slew of new flats entering the market, Hong Kong could be headed for another crash.
Some have predicted as much as a 30 percent fall in property prices next year.
Are we ready for it? Will we finally overcome our addiction to property?
The first thing we have to do is identify the root causes that led to the housing bubble and address them immediately.
This requires a review of our entire financial system and a closer look at the factors that are distorting the property market such as monetary policy.
We should make the so-called “double spicy measures” permanent to curb speculation.
Second, the government should tighten lending controls on banks to curb “hot money” inflows into the property market.
Lastly, it should introduce property tax and capital gains tax to reduce the incentive for speculative activity.
In the meantime, we have to change our mindset that a flat is a commodity we can speculate on and profit from.
Instead, we should start treating our flat as a home.
Young people cannot be expected to commit to a mortgage given the changing dynamic in the workplace as short-term flexible contracts increasingly become commonplace.
For many Gen-Xers and millennials who like mobility and financial freedom, home ownership is no longer necessary.
Many are happy to live in a rented unit into their thirties, even forties.
The government should meet their needs by providing reasonable and sufficient alternatives for those who cannot afford a home or are not eligible for a public rental housing flat.
One way to do this is by fostering the growth of a more affordable and balanced private rental market.
Hong Kong can learn from Germany, where home ownership is the lowest in the developed world and the percentage of people living in rented dwellings are among the highest.
This was achieved by proper government regulation and public-private partnerships.
It doesn’t take a lot of public money to develop a more affordable private rental market as many people might think.
We have a considerable amount of untapped resources such as the Sandwich Class Housing Scheme of the Hong Kong Housing Society which has stopped accepting new applications since 2011.
Flats owned by social welfare organizations are another source of rental flats.
Also, the Urban Renewal Authority can consider renting out some of its newly built units instead of selling them.
This article appeared in the Hong Kong Economic Journal on Dec.7.
Translation by Alan Lee
[Chinese version 中文版]
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