As the average waiting time for a public rental housing (PRH) flat is getting longer and longer, many people simply ask: why doesn’t the government just build more PRH units?
There has been a popular myth that the reason the government is unable to build enough PRH flats is that there is not enough land.
The truth is, the problem is not a shortage of land but a shortage of money.
Contrary to what most people think, the Housing Authority (HA), not the government, pays for the construction of PRH flats.
All the government does is supply land for free. And as a self-financing and independent public body, the HA has to generate its own revenues in order to pay for its public housing projects.
Over the years, the major, if not the only, source of revenue for the HA has been from selling flats under various subsidized home ownership schemes to eligible families below the market rate and channeling the proceeds less costs to build PRH flats.
In other words, it is the “sandwich class” families, not the government, that have been funding our public housing program.
Subsidized flats will compete with private projects. If there are too many of them, they could depress demand and prices for private homes, sapping property developers’ interest in buying land.
Bearing in mind how important land sales revenue is to the government’s finances, it is not surprising why the number of subsidized flats built are capped.
As a result, the public housing program has continued to lag behind demand because the HA simply doesn’t have enough money to build more PRH flats.
It would be naive to think that we can continue to rely on the HA to resolve our housing shortage. We need to find another way.
In fact, there is a feasible option: the government can consider allocating vacant lots to housing cooperatives at a nominal premium and allowing them to build residential flats on these lots with their own money.
Unlike land that is sold to developers through auctions, these sites will not be owned by the housing cooperatives, and therefore the flats they build are of little investment value.
That means they are unlikely to draw investors or speculators, thereby ensuring that their prices won’t soar.
For instance, a 500-square-foot housing cooperative flat may cost only HK$1 million, or one-fifth of the market value of a private project.
With a mortgage, one only needs to pay roughly HK$6,000 a month, which is totally affordable. Meanwhile, the government does not have to worry about the funding issue.
This article appeared in the Hong Kong Economic Journal on Feb. 16
Translation by Alan Lee
[Chinese version 中文版]
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