One Small Step For Man
The new housing measures announced by Chief Executive Leung Chun Ying last week, together with some announced earlier, are welcome. They make a start on addressing the three key failings of the previous administration in this area.
What were those failings?
First, scrapping of the annual land sales programme and reliance on an application list system led to a gradual strangling of supply which forced up prices.
Second, scrapping of the Home Ownership Scheme removed a key rung of the ladder which permitted upward mobility in housing opportunities for the middle class.
Third, these two measures and other action or inaction by the government sent a clear signal that the administration’s land disposal programme was being run in the interests of – and arguably at the behest of – the major property tycoons.
The significance of a steady – and Government determined – sales programme, is that it keeps the market regularly supplied with land and can be adjusted to suit circumstances. If the major players drop out in an informal boycott, the smaller players can take up the slack. If there are still no takers because the capital outlay is too great, sites can be broken up into smaller lots. In extremis, other action can be contemplated to ensure a steady output of completed flats for rent or sale.
Complete reliance on an application list system, by contrast, puts the major developers entirely in the driving seat to the exclusion of all other stakeholders. Simply by sitting on their hands they can ensure that price levels for their existing inventory of unsold units, or the value of their undeveloped landbanks, will rise until profits are maximised.
The scrapping of the HOS component of the market meant there was a gap. Over the years, the community has recognised a well worn path of upward mobility from squatter hut to public rental housing, on to assisted (subsidised) ownership, up to ownership of an unsubsidised modest-sized flat built by the private sector, and so on.
You kept going onward and upward as far as hard work and good fortune would take you until you ran out of time or ambition.
But without HOS, short of a win on the Mark 6 – and a first prize at that -- there was almost no way you could jump from public rental housing to a private apartment.
The result was a widening of the divide. Those who had purchased years earlier sat smugly on their paper gains, congratulating themselves on their foresight or good fortune. While those without a foot on the housing ladder began to despair of ever owning their own home.
Even families with university educated couples in good professional jobs drawing reasonable incomes could not hope to save the deposit for a decent apartment.
Such a situation invites social instability. It invites cynicism of the motives of the government and individuals within it. Announcements of multi billion dollar profits by the powerful few, who are then seen cavorting with senior officials, undermines the legitimacy of the government.
To be fair to the previous administration, in addition to an unwarranted deference to the wealthy and powerful, there was also a fear of upsetting those home owners who were in negative equity after the last economic crisis and had seen millions of dollars wiped off the value of their savings.
But the Tsang team allowed caution to shape housing policies for too long.
Mr Leung ran for office on the slogan of “change while preserving stability”. He realised that unless there was change there could not be stability. On the contrary, it was at risk.
Resumption of regular sales by auction or tender, resurrection of HOS, permission for 5000 existing HOS owners to sell without paying the difference in land premium, rezoning of industrial and other sites to allow residential development – all measures implemented in the last few months – have sent a clear signal which will sooner or later begin to take effect.
There will then be a softening of property prices and perhaps a modest fall. Given Hong Kong’s past record, any price reversal is likely to be an over reaction. Then will come the real test of the Leung administration – whether it can hold its nerve in the face of public criticism for engineering the fall.
But at least, in the week when a hero from an earlier era, Neil Armstrong died, we in Hong Kong have seen another “small step for man”. Let us celebrate that.