How Hong Kong can turbocharge home ownership
Subsidised housing prices should be tied to household income, not land premiums, so as to give more families home ownership opportunities. Allowing more people to buy their own homes would ease the government’s burden of providing public rental housing – and boost the economy.
Attempts to solve Hong Kong’s long-standing housing shortage problem have so far fallen short. In the hope of addressing this issue once and for all, we propose a new kind of home ownership scheme aimed at rebalancing the public and private housing supplies – and ultimately ensuring residents’ right to adequate housing, as recognised by the United Nations.
Apartments under our “New Home Ownership Scheme” (NHOS) would be priced without land premiums being factored in, and instead, according to household income levels. As only construction costs would be counted, we envisage that flats of various sizes could be priced at between HK$1 million (US$130,000) and HK$3.5 million, with a mortgage-income ratio of about 30 per cent.
With regard to annual completion of flats, the emphasis would be on building more NHOS units and giving more home ownership opportunities to the sandwich class, currently shut out by skyrocketing prices and from existing subsidised housing schemes. Fewer public rental and private housing units would need to be built, leaving total investment in the property sector intact.
The new scheme would also cater to different living space needs (say, from 450 sq ft to 900 sq ft) at different stages of life and would allow buyers to move twice (to a bigger or smaller unit). New flats would be sold at prices covering the construction costs but requiring a minimum down payment, so that practically any household in the middle-income range of HK$20,000 to HK$75,000 could benefit from the scheme.
Assuming a 20-year mortgage at a 90 per cent loan-value ratio, with a 3 per cent per annum interest rate, and a price of 115 per cent of the estimated construction cost of HK$2,070 per sq ft, we arrive at a selling price of between HK$1 million and HK$3.5 million, with mortgage payments comfortably commensurate with income.
Currently, the government sets the discount rate for Home Ownership Scheme (HOS) flats at around 30 to 60 per cent of the market value, to balance the buyer’s income and mortgage payment ratio. With rising prices, earlier buyers may feel short-changed as later buyers enjoy bigger discounts.
Also, the argument that a larger percentage of land premium compensation will need to be paid by the buyer upon sale of the apartment if the discount is bigger is irrelevant as nearly all secondary HOS transactions are completed by buyers who are either sitting tenants in, or eligible applicants for, public rental housing – both with full entitlement to the original discounts.
A change to income-linked pricing of no more than 45 per cent would therefore mean a fairer subsidy allocation.
A scheme that is tied to buyers’ income levels could also ease their anxiety over their income perennially lagging behind escalating prices.
We also suggest that a land use levy be imposed to provide a recurrent stream of revenue for the government in lieu of the land premium. With the levy at, say, 1 per cent of the land premium, the outlay would still be affordable for families.
Other features of the NHOS include a centralised secondary market where owners could only sell their flats back to the government, according to a market value indexed to socio-economic indicators. This would help insulate this market from speculative demand in the private sector and ease stock turnover within the NHOS, ensuring that social resources are used efficiently and equitably.
Other conditions could also be introduced, such as a minimum occupancy requirement of five to seven years, before the buyer was allowed to switch to a larger flat, and a ban on owning private properties in Hong Kong or overseas.
Widening the eligibility for subsidised home ownership would encourage those who are living in, or are on the waiting list for, public rental units to opt for the NHOS.
From the government’s perspective, public rental housing is a fiscal burden and a management challenge, partly because some tenants lack a sense of ownership. Housing people in homes they own rather than rent would ease the burden not only of construction costs but also property maintenance and management problems.
According to Dr Wang Chunxin – a veteran economic and policy researcher who first proposed an alternative home ownership scheme and whose research findings have inspired us – if 50,000 new units – including 35,000 NHOS units – were built annually, the Hong Kong economy could grow by 1 per cent a year, thanks to extra value-added in the property sector, as well as an estimated 90,000 new jobs for low- and middle-income workers.
Many Hongkongers aspire to home ownership. By our projections, the New Home Ownership Scheme would help achieve a healthier ratio of public rental units to subsidised sale units and private housing, so that the present 29:14:57 changes to around 24:29:47 within two decades. This would mean 76 per cent of the resident population would become homeowners, thanks to the government’s provision of subsidised housing.
The success of our proposal rests on the supply of suitable land parcels. We have previously put forward several ideas for how to accelerate land resumption, optimise the use of government land and use cruise ships for short-term housing. These ideas would help meet our city’s transitional housing needs. Only with a clear road map can the government inspire trust and foster unity, which Hong Kong needs if it is to stay ahead of our developed neighbours in East Asia.