restricted access 22: Why Reforming Subsidized Housing Makes Sense
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22 Why Reforming Subsidized Housing Makes Sense In my previous essay, I suggested resetting the unpaid discounted premium on flats under the Home Ownership Scheme (HOS) and Tenants Purchase Scheme (TPS) at the original sale price, when they were first sold by the Housing Authority. I also proposed presetting the selling price five years down the road for “My Home Purchase Plan” flats at the prevailing market price when the flats are first rented to the eligible tenant by the Housing Society. In this essay, I will explain the context and reasons for my proposal. Hong Kong has been fortunate enough to benefit from reforms in underdeveloped socialist command economies and their integration into the developed capitalist world. This change has been of seismic proportions, flooding the global market with a sudden abundance of labor. Not since the fourteenth century when the Bubonic Plague wiped out 30% to 60% of Europe’s population , have we witnessed such a dramatic change in the ratio of capital-to-labor. In the wake of the Black Death, the rising capital-to-labor ratio rose dramatically and created the opportunity for several novel conditions—labor-saving technological innovations, an agricultural revolution, the rise of commerce, the dawning of the Renaissance and later, the Protestant Reformation, which heralded in the modern era. In the final decades of the twentieth century, the world’s capital-to-labor ratio fell dramatically when the socialist and developing nations began integrating with the capitalist economies. The consequences for the world have been enormous and are still being felt. Property Prices and Income Growth Hong Kong under “one country, two systems” will share many of the emerging opportunities of this new era. It is revealing that in 2010 alone, 40,000 mothers from mainland China voted with their feet by choosing to give birth in Hong 210 Resolving a Critical Deep Contradiction Kong. This was robust evidence of their confidence in what our city has to offer. The people of Hong Kong are, however, quite divided on the many events and issues emerging from all these changes. This is not at all surprising. Hong Kong feels acutely the tremors and aftershocks of the continuing seismic changes of two worlds colliding. The collision on the global stage is manifested locally in the incongruities between the Cowperthwaite–Haddon-Cave and MacLehose legacies, and between free markets and the welfare state. The free market’s supporters are eager to reach out to the emerging opportunities sprouting everywhere. The welfare state’s sympathizers are gripped by a siege mentality and wish to be protected from the competitors at the gate. All over the world, beneficiaries of the welfare state are hostile toward outsiders who come to share their subsidies. Our existing political arrangements encourage politicians to become populist advocates of the welfare state. Hong Kong therefore paradoxically moves away from the system that “one country, two systems” was created to preserve. Hong Kong’s economic advances are reflected in the rise of real property values since the early 1980s (apart from the Asian financial crisis from 1998 to 2003; see Figure 22.1). Rising property prices reflect rising incomes, both actual and expected, due to a prospering economy. In the period 1984–1993, property prices tripled across units of all sizes, although the rise in the value of smaller units was the most rapid. In contrast, from 2003 to 2010, the rise was more significant among larger units. While prices on smaller units doubled, for larger ones they tripled. When China began opening up, the majority of Hong Kong’s population during 1984–1993 experienced an increase in productivity as the economy evolved from manufacturing to services. The value of their human capital appreciated. As a consequence, the economic benefits reached households with different incomes and the resulting property price increases were spread across all unit sizes. Prosperity was thus shared amongst a variety of households. Naturally, not everyone was able to purchase properties before prices rose. This created an economic division between the haves and have-nots and led to numerous calls to curb soaring prices. On many occasions, the government adopted measures to control speculation; it also introduced the Sandwich Class Housing Scheme to pacify those who had missed out. When property prices collapsed after the Asian financial crisis of 1997, both the haves and the have-nots suffered, and incomes faltered across the board. But when the property market took off again after 2003, the have-nots found Why Reforming Subsidized...