September 1998　

1. In the White Paper “Homes for Hong Kong People Into the 21^st Century” published in February 1988, the government concluded that it was “fully committed to solving the housing problem in Hong Kong”. The “housing problem” referred to then was insufficient supply and high housing prices. Now, less than six months from the publishing of the white paper, the “housing problem” has taken on a different meaning. As understood by the public, it is often taken to refer to falling prices.

　

2. Has the government failed in its housing policy? Specifically, has it been right for Chief Executive Mr Tung Chee Hwa to have pledged the targets of 85,000 flats a year and 70% ownership by 2007? The issues are complex and we would like, through this brief paper, to contribute a few thoughts and comments.

　

3. As a matter of principle, it is our view that the housing market should be given the maximum freedom, like any other industry or sector. But because housing cannot be developed independently of infrastructure, community facilities and other land uses, comprehensive planning would be required. That should take account also of the growth in population and the economy, the needs for infrastructure and the demands of competing land uses. This is precisely what the Territorial Development Strategy Review has sought to do. While the outcome of the TDSR may be debated, few would question the need for such a comprehensive land use strategy.

　

4. By the same token, free market principle notwithstanding, a housing strategy by the government is not unwarranted. In fact, we would consider it the mark of a responsible government to have a long term housing strategy. Taking account of the following context, we understand the targets of 85,000-flats and 70%-ownership and we consider them not unreasonable:

• Hong Kong is a world-class service economy, yet the average flat size is small compared with other cities.
• In spite of the current economic recession, we remain optimistic over the economic prospects of Hong Kong.
• In the longer term, taking the projection of the TDSR as a guide, there is still a big demand for more, bigger and better-quality housing.

5. At the same time, we believe it imperative to build in an element of flexibility for any strategy. In the course of implementation, a strategy has to be reviewed constantly according to prevailing circumstances. Presently, the Asian economic crisis has precipitated turmoil in the local economy. Many businesses and households have been affected in a fundamental way. For many businesses it has become necessary for their strategies to be reviewed and their targets revised accordingly. The need for flexibility has become all the more important in seeking to achieve the aims as set out by the strategy.

　

6. In the case of housing, we consider that government should implement the housing strategy with greater flexibility. Although we acknowledge that an effort has been made by government in response to the changing market situation, the targets and procedures have remained unchanged. The result is that government policy appears ineffective, or worse, inconsistent.

　

7. One example of inflexibility is that of processing time for the loan schemes to assist first time buyers. While a welcome measure to stabilise the housing market, the processing time for these schemes has remained painfully slow, thus threatening to render the schemes ineffective.

　

8. Another example is that of the temporary freezing of the land sales programme for nine months, which has not been complemented by a realistic re-assessment of the supply of housing – and hence by implication the 85,000-flats target. The result is that it reinforces the impression that government policy is inconsistent.

　

9. A more fundamental issue which we consider should be reviewed is that of the public sector's participation in the private housing market. Clearly, the Sandwich Class Scheme and the Home Ownership Scheme are competing with the private sector. The pressure will increase further as the tenant purchase scheme for public housing continues its course. As the difference in prices between private and public housing is getting smaller, the Sandwich Class Scheme and Home Ownership Scheme has become more difficult to justify. If a subsidy were to be offered, it would be economically more efficient for a cash subsidy to be made to home buyers to purchase privately-built property rather than the present schemes which will inevitably distort the market. We suggest that consideration should be given to suspending, if not removing, the Sandwich Class and Home Ownership Schemes.

Finally, we would reiterate the principle that the market should be given the maximum freedom to run its course. When prices appear high government should not over-react. Likewise, when the market is down government should be clear and consistent to maintain confidence.

(Ends)