The Hong Kong government’s new Consultation Framework on Subsidising Home Ownership, is a masterpiece of cynical, pointless, consultation-farce. Usually, these public engagement exercises on health care finance, tax reform or whatever ignore some options altogether, while including others that are unacceptable or unworkable, plus one more. The citizen’s job is to spot the one the bureaucrats have already decided on. In this particular case, we don’t even have to do that.
The bottom line is: we must have a ‘healthy’ property market!
What is that exactly? It is one where everyone who has bought an apartment is sitting happily on a nice fat profit and yet, simultaneously, everyone who is yet to buy finds the prices deliciously attractive. Not possible.
On top of that, certain local characteristics make the idea of a ‘healthy’ property market even more elusive. Our currency peg denies the government the ability to tweak interest rates upward to cool asset price inflation, so officials just resign themselves to bubbles (and, in the case of housing minister Eva Cheng with her HK$60 million apartment for the kid, make a healthy profit by buying at the right time).
Most of all, the government itself is confused about its own purpose and that of physical space in this city. As things currently stand, the government’s primary raison d’etre is to raise revenue, and the main use for land is to be converted into that revenue. The interests of the people and the economy come second. The result is an artificial scarcity/expense of space for housing and business, and an economy dominated by a few families who act as tax farmers taking it in turns to distribute the small amounts of land the officials make available.
From time to time, buying a vaguely habitable home gets too beyond the reach of many Hong Kong people, and this leads to much whining. Tackling the root cause of the problem (also known as ‘the root cause of Eva’s 200% paper profit on her flat’) is obviously not going to happen. All we can do is sit back and wait for interest rates to rise. This Consultation is simply designed to give worriers and naggers something to do in the intervening period.
Note that the government is inviting us to consider ‘subsidising’ home ownership. This, like ‘socialized’ medicine to American conservatives, is a loaded term. What we are really talking about here is homes on which Cheung Kong, Sun Hung Kai or Henderson Land do not make a 50% profit margin, and the buyer does not contribute as much as usual to the government’s capital works reserve fund, much of which ends up flowing to privately-held construction companies owned by the same families that own the aforementioned real estate giants. It would be more accurate to call them non-subsidy homes: the purchaser does not have to subsidize the property tycoons.
My humble solution, crafted painstakingly in the shower this morning, is aimed to fix the problem of over-priced little apartments while at least possibly avoiding a sudden crash in prices, which would cause not only Eva but many other people great anguish – of the sort that had negative-equity homebuyers committing suicide back in 1998. The idea is to create a ‘healthy’ property market by ending the insistence that residential real estate can be both a home and an investment.
In a way, we already do this through the public housing estates. But these are deliberately designed to be nasty and undesirable, and are theoretically reserved for the poor. The better off can only either rent (ie, pay off someone else’s overpriced investment) or take out a mortgage on an investment of their own and work the next 20 years for the Lis, Kwoks or Lees.
Under my modest proposal, the government would look at a map of Hong Kong and notice the surprising amount of empty space (like out at Junk Bay) and land that could be freed up by evicting freeloaders like Disney, the Science Park, golf courses and cruise liner terminals. The resulting land – equivalent to maybe half of Kowloon – would be earmarked for fairly dense development of large apartments, say 1,000-1,500 sq ft. They would be rented to taxpaying families with children for an amount related to their income (say, 150% of their salaries tax bill). There would be no frills: no car parks, no club houses, no chandeliers in marble foyers – just an MTR station, bike racks and a public swimming pool. Anyone caught subletting would have a hand chopped off.
People who wanted to carry on buying and selling little concrete boxes would be free to do so in other parts of town. These new areas would be havens for people – maybe several hundred thousand households in time – who want to opt out of all that and just have a place to live in and put their savings into mutual funds.
Simple. Tomorrow, I will solve the Middle East.