An average number of new disgruntled pressure groups started protesting in Hong Kong over the weekend, including the Sai Kung League Against Driving Into Cows and the No to Dumping 80% of All Trash in Tsuen Mun Campaign. And then there was the Alliance of Double Stamp Duty Victims march.
The name suggests that they support innocent home-buyers frozen out of the market by the extra levies the government has imposed on property transactions to (allegedly) ease prices. In fact, the organization represents real-estate agencies – the intermediaries who skim a commission off every deal. By pulling the plug on speculation as the frenzy expanded into such idiocies as hotel suites and parking spaces, the government has hit these agencies hard. They can make so much during a bubble that they outbid other retail outlets for ground-level space and drive ordinary shops out of whole stretches of streets in residential neighbourhoods. Recall that buying and selling little concrete boxes does not add to GDP. Even the cartel-supporting Standard’s ‘Mary Ma’ editorial struggles to express sympathy.
It would be heartening if the government announced that 90% of agencies should close, and 90% of the spotty inadequates who staff them find more productive employment. Instead, the official statement justifies the extra stamp duty as better than nothing as the bubble gets closer to bursting. (One factor in all this is that our lower-performing high schools produce graduates that are numerate and hard-working but still somehow barely fit for salaried, wealth-creating employment, and it’s either this or being an insurance salesman.)
The government press statement says the extraordinary measures “will be adjusted or withdrawn once the property market has restored to normal condition.” Can anyone remember a time when the real-estate sector was in a ‘normal condition’?
Not all critics oppose the extra stamp duty out of self-interest. Some dislike it in principle, for interfering in economic freedom and maybe even infringing the Basic Law. But this is about practical politics, not theoretical economics. When the government feels a need to do things like ban people from carrying more than two cans of infant formula out of the city, you know something isn’t right. Hong Kong is undergoing extreme economic distortions, and even the most competent and popular administration would be tempted to compensate in the short-term through counter-distortions.
The property bubble and unaffordability of housing is partly the result of ultra-low US interest rates and Hong Kong’s dollar peg. A further factor is the prevalent local investment psychology (not peculiar to Hong Kong) that real estate is the only asset class. Last but not least, there is past government policy to starve the market of supply and allow developers to build for outsiders and investors rather than end-users.
If critics of the extra stamp duty proposed scrapping the dollar peg or came up with some magic-wand quick-fix to the housing costs problem, maybe more people would listen. The only half-way sensible suggestion was to put container-accommodation in spare space under bridges, and few people above the age of 15 had the imagination to handle that idea.
The killer argument against the government measures is simply that they don’t work. But at the margins, at least, maybe they do. The recent peaking of residential prices – insofar as the indices are reliable given such low volumes – suggests that the government’s measures have had an impact. If the frenzy had been allowed to continue into and beyond parking-space territory, we would be building up towards an even bigger collapse when it finally comes, and secretaries and taxi drivers would have been caught up in it and we all know what happens next. It isn’t solving the problem, but it might be reducing the ultimate carnage a bit.
This is damning with faint praise. But then, we can look forward to seeing the sight of property agencies turning back into hairdressers and stationers, and agents flinging themselves from tall buildings – and consider saying to the government, “Okay, carry on.”