Too little, too late and the wrong measures for HK

Hong Kong leader Carrie Lam delivered "The Chief Executive's 2019 Policy Address" on October 16, amidst Hong Kong’s worst political crisis since the 1997 Handover. She announced housing plans and living subsidies to low-income households. Economist Prof Paul Yip opines that these are too little, too late and the wrong measures for current Hong Kong.
Night falls as a lone protester walks on the street. (Anthony Wallace/AFP)
Night falls as a lone protester walks on the street. (Anthony Wallace/AFP)

In the 2019 policy address by Hong Kong’s Chief Executive, the Hong Kong government identified housing (high prices and a severe shortage of public housing) as the most pressing livelihood issue and a source of public grievances. The policy address emphasised that housing and land supply is the government’s top priority, but while the supply of public housing will increase in the medium to long term, this is unlikely to placate the Hong Kong public in the short term. 

New housing measures cannot appease public

Firstly, the increase in the supply of public housing units in the short term is a drop in the ocean. What is more noteworthy is the government’s plan to provide an additional 10,000 transitional housing units (such as shipping container homes) over the next three years and 3,360 new places under its youth hostel projects over the next few years. In comparison, the number of new Public Rental Housing (PRH) units and Home Ownership Scheme (HOS) flats in the short term is modest. As for the nearly 1,000 Starter Homes (SH) units coming up in Anderson Road, they are unlikely to be priced much lower than private housing units since these projects are handled by private developers, plus there are only 1,000 units. It would have been better if the Hong Kong government had taken on the development of SH units, but its misstep has resulted in a dwindling supply of affordable public housing. 

In the short term, the new supply of public housing in Hong Kong is merely a fraction of the demand. It would be wishful thinking if the Hong Kong government hopes to appease the public with such inadequate measures.

carrie lam
Hong Kong’s Chief Executive Carrie Lam delivering the 2019 policy address. (Paul Yeung/Bloomberg)

The monks are many and the gruel too little

Worse, the Hong Kong government has not been able to get the central government in Beijing to halve the number of one-way permits for new migrants from mainland China. Based on the daily quota of 150 permits, up to a million new migrants have arrived in Hong Kong under this scheme in the last decade or two.

A case in point is that the massive population in Hong Kong coupled with the housing shortage has forced many new migrants and even locals into subdivided flats that are cramped and harsh to live in. This is also part of the reason why Hong Kong youths resent the Hong Kong government and the new migrants. Their severe discontent also extends to the central government in Beijing.

Even if more new public housing units were to be built, the majority would be taken up by new migrants who have fulfilled their minimum residency duration and who enjoy priority due to low income or other needs. This has resulted in youths who are born and bred in Hong Kong complaining about their inability to obtain public housing as a single applicant by the time they turn 50, even if they were to join the queue for a unit at the age of 18. 

In contrast, new migrants are able to obtain housing quickly. In addition, the large numbers of new migrants also mean that Hong Kong youths find it more difficult to land a HOS unit, with hundreds of thousands of applicants clamouring for just over 3,000 units in the annual ballot. It is no wonder that this has led to outbursts such as “winning the ballot for a HOS unit is tougher than striking the Mark Six (lottery)” from local youths.

To make things worse, the million or so new migrants is also a substantial burden on healthcare services, the living environment, urban living, education services and social welfare spending in Hong Kong. A case in point is that the massive population in Hong Kong coupled with the housing shortage has forced many new migrants and even locals into subdivided flats that are cramped and harsh to live in. This is also part of the reason why Hong Kong youths resent the Hong Kong government and the new migrants. Their severe discontent also extends to the central government in Beijing.

Even if the one-way permits scheme was to be cancelled, it would merely prevent the current situation from worsening. In the face of not unreasonable demands from the youths, the refusal by the authorities to accede to even halving the daily quota of one-way permits coupled with just a tiny increase in the supply of public housing in the short term will only further anger the youths and result in fiercer protests. 

To add fuel to fire, the number of new public housing units in the short term is much smaller than the tens of thousands of new migrants that move to Hong Kong every year. The Hong Kong people would realise very quickly that the policy address which purports to tackle housing issues has only led to longer waiting times for PRH units and made it harder to win the ballot for a HOS flat. This would lead to the credibility of the Hong Kong government hitting rock bottom.

Measures will further inflate property bubble 

Another controversy in the 2019 policy address is the government’s decision to raise the cap on the value of a property eligible for a mortgage loan of up to 90% of its loan-to-value (LTV) ratio from the existing HK$4 million to HK$8 million for first-time home buyers. At the same time, the cap for a property that qualifies for a mortgage loan of up to 80% of its LTV ratio will be raised from HK$6 million to HK$10 million. 

On paper, these are measures to ease the burden on first-time home buyers, but in truth, the government is trying to prevent property prices from falling further by doing so. The problem is, property prices in Hong Kong are already over the top and this has already inflicted plenty of hardship on the locals. Rolling out such measures to prop up property prices will only benefit the developers by allowing them to sell their current units at high prices. In doing so, the government is also putting first-time home buyers at risk of suffering painful losses when the property bubble bursts.

HK property
Housing in the Kowloon area, where the Starter Homes initiative is being piloted. (CNS)

Furthermore, the Hong Kong government may end up inflating the property bubble further, leading to greater damage when it explodes. It is not difficult to imagine the wrath of the Hong Kong people towards the Chief Executive and the government when that happens and any accusation of colluding with the developers would be hard for them to shake off then. 

If the protests do not let up, business owners who are currently operating at a loss would eventually have to close shop and lay off staff. This would have the multiplier effect of triggering a severe economic recession and widespread retrenchment in Hong Kong.

Hong Kong youths are already voicing out their indignation at the above measures in online forums such as Lihkg.com and HKGolden. Looking at the way things are, the protests in Hong Kong are likely to worsen. The protests on the streets and at the airport in the past few months have already led to a massive drop in tourist arrivals, and revenue figures in the hotel, tourism and retail industries have plummeted.

To rub salt into the wound, the relentless street protests, the severe damage caused to the MTR system and the disrupted operating hours of retail outlets have caused Hong Kongers to cut back substantially on spending. If the protests do not let up, business owners who are currently operating at a loss would eventually have to close shop and lay off staff. This would have the multiplier effect of triggering a severe economic recession and widespread retrenchment in Hong Kong.

To sum up, the 2019 policy address has exacerbated the hostility between the youths and the government in Hong Kong instead of alleviating it. As a result, the Hong Kong economy is slipping towards a prolonged and severe recession, and large-scale retrenchment. On the other hand, property prices hinge on the risk appetites of the locals. In the short term, property prices would at least stop sliding or might even rebound strongly. But in the long term, the property bubble will eventually burst with devastating outcomes, leading to greater political turmoil.