As expected, Chief Executive Carrie Lam Cheng Yuet-ngor finally unveiled the details of her proposed empty homes tax Friday.
Dissenting voices are mainly coming from big developers and the related sectors, which was not surprising since the tax affects their vested interests.
They have argued that the tax would destroy our free market system and undermine our hard-earned status as the world’s freest economy.
There is no doubt that the principle of free market economy forms the cornerstone of our city’s prosperity.
And as such, according to these people, departing from this long-standing principle should not be allowed.
I feel compelled to take issue with this line of thinking. From a macro perspective, the economy alone doesn’t account for the whole society – even in a society as highly commercialized as ours.
In other words, you can never run and manage a society on the basis of economic principles alone.
From a micro perspective, whether or not something should be managed entirely according to free market principles depends largely on whether that something is purely a “commodity”.
It is beyond dispute that housing is not only a commodity but even more so, a social resource that can directly and substantially affect people’s basic living condition. Homes, therefore, cannot, and should not, be considered as purely a commodity.
Moreover, even though properties are mainly developed by private companies, the property market should not be run entirely according to free market principles, just as the energy market and the public transport system in our city, which are also dominated by the private sector, should not be managed purely as a business.
Countries like the United Kingdom, the United States, Canada, Australia and Singapore, all of which, like Hong Kong, have high rankings on economic freedom indices, have been enforcing empty homes tax for a long time.
But these countries have never been criticized for violating the free market by imposing taxes on empty homes.
Nor have the actual operation and people’s general perception of these country’s free market mechanism ever been undermined by their empty homes tax.
In the meantime, some real estate developers have also argued that the empty homes tax is unlikely to work because the actual number of empty homes in the city has yet to reach a level that would make the situation an issue.
I believe this question should be examined in the context of the existing reality in society.
Ten years ago, when home supply was abundant and property prices steady, empty flats – whether or not they were the result of big developers hoarding up their newly completed flats in order to sell them at better prices – had limited impact and probably would not have constituted an issue at all.
The problem is, over the past decade, property prices in our city have been skyrocketing to such an extent that the vast majority of the public can no longer afford to buy their own homes.
That being the case, the presence of empty homes would be naturally considered a waste of social resources, or a strategy of property developers to make more money.
Imagine this: the Housing Authority would definitely come under fire for losing touch with the reality if it insisted that there is no need to boost the supply of public housing when today the number of applicants for Public Rental Housing (PRH) flats has already hit 300,000 and the average waiting time over five years.
Suffice it to say that when a market situation has already evolved into a social issue, the government and lawmakers should stop looking at this issue from a purely economic angle or from the viewpoint of vested interests in the market.
This article appeared in the Hong Kong Economic Journal on June 13
Translation by Alan Lee with additional reporting
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