For years, when we talked of “affordable” homes for first-time homebuyers, we often referred to small apartment units of around 400 square feet in size with one or two bedrooms.
But as property prices continue to skyrocket, many of these 400-square-foot flats are no longer affordable, as some of them can go for as much as HK$10 million these days.
We are in the midst of probably the worst housing affordability crisis Hong Kong has ever seen.
As grievances mount, finding a viable solution to the acute housing shortage and absurdly high property prices will definitely prove a daunting task for incoming Chief Executive Carrie Lam Cheng Yuet-ngor.
The housing problem often lies at the root of many of our social woes and is among the most significant contributing factors to our widening wealth gap.
That’s why the degree to which Lam is able to resolve this pressing issue after July 1 may to a large extent determine whether she can truly restore harmony to society and mend fences as she has pledged to do during the election campaign.
The fact that even small residential flats, which were once considered affordable, are now being sold at premium prices has given rise to the so-called nano-scale flats: tiny and affordable studio flats as small as 100 to 200 square feet that are tailor-made for first-time homebuyers with moderate income.
Despite their ridiculously small size, these “nano flats” have been selling like hotcakes because of the flexible finance options offered by developers to buyers, and also because these are the only flats ordinary young couples can afford these days.
However, even these “nano flats” have become increasingly expensive that they are no longer “affordable”. For example, a 180-square-foot studio at a new private housing estate in Tai Po was sold for a whopping HK$3.3 million, or HK$18,000 per square foot.
For average families making a median household income of just HK$25,200 a month, their last hope of buying their own home appears to be fading quickly.
To tackle the housing affordability crisis, Lam has proposed to relaunch the Green Form Subsidized Home Ownership Pilot Scheme (GSH) and designate sites to build new homes exclusively for local first-time homebuyers.
According to Lam, the GSH is aimed at encouraging existing Public Rental Housing (PRH) tenants to buy their own flats so that they can vacate their units for those who are in need, while the proposal to build new homes exclusively for local first-time homebuyers seeks to help “sandwich-class” families who are neither eligible for public housing nor able to afford their own homes in the private market.
The public will surely welcome any policy initiative to re-establish a progressive housing ladder and boost homeownership in the city.
However, we have some concerns about Lam’s proposals, as we are worried that her plan might backfire, and end up being another example of good intentions with bad outcomes.
Firstly, the shortage of land in Hong Kong raises the question of whether Lam will be able to find land in a decent location to build new homes for local first-time homebuyers.
Secondly, we are worried that these new homes might once again end up becoming another huge goldmine for speculators and in turn drive up property prices even further, just like what is currently happening with the Home Ownership Scheme (HOS) secondary market.
To avoid that scenario, we suggest that the new homes to be made available exclusively to local first-time homebuyers should be priced according to the buyers’ capacity to pay rather than the existing market rate.
Also, rigorous terms should be imposed on buyers of these flats. First, they must be owner-occupied rather than investor-owned. And second, these flats cannot be rented out, and they can only be resold to another first-time homebuyer in order to keep out speculators.
In the meantime, we believe Lam’s proposal to allow HOS flat owners who haven’t paid their land premium to rent out their properties through social enterprises is a viable option, as it could help curb the skyrocketing rents in the city.
This article appeared in the Hong Kong Economic Journal on April 7
Translation by Alan Lee
[Chinese version 中文版]
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