(This essay was published in the South China Morning Post on 27 March 2019.)
The Tenant Purchase Scheme (TPS) introduced in 1998 sold 140,298 public rental housing (PRH) units to sitting tenants. Initially, about 57 per cent of the units available for sale were taken up and in the past decade this increased to 72 per cent. Through promoting homeownership, the TPS has increased labor force participation rate and decreased unemployment among those families who bought these units.
But there were two other important effects. The TPS also lowered inequality in housing property wealth and promoted family stability.
Family stability was promoted because the TPS provided an opportunity for tenants to become homeowners and thus created an economic stake for families to stay together – their jointly owned asset whose value appreciates over time. If the family divorces, sharing in the full present and future value of the housing asset becomes less certain.
Unlike TPS homeowners, PRH estate tenants suffer very little economic loss when a married couple divorces because they do not jointly own an asset to begin with. Normally, one of the divorced tenants keeps the PRH unit, often the mother who has custody of the children. The other spouse leaves the present PRH unit but is free to apply for another one and join the applicants’ waiting list. The waiting time is faster if the applicant remarries and has children in the meantime.
This implies that TPS homeowners have a strong incentive to maintain family stability to avert the economic loss from a divorce. Perversely, PRH tenants face no such deterrence. Given this, the current government policy to shift public housing policy towards homeownership and away from rental housing is to be lauded.
The extent of family stability to be gained from homeownership is evident in the Census data for residents in TPS and PRH units from 2001-16.
Over the four censuses held during that period, the average divorce rates for ever-married men and women aged 18 to 54 were uniformly lower in TPS estates relative to PRH estates, by 1.3 per cent for men and 2.2 per cent for women. There was also a difference within TPS estates between those who chosed to become homeowners and those who decided to remain as tenants: the average divorce rates were 3.7 per cent lower for men and 9.2 per cent lower for women among owner households.
The average single parenthood rates in TPS estates have also been less prevalent and lower than those in PRH estates – 0.7 per cent lower for ever-married men aged 18 to 54, and 2.4 per cent lower for women. Within TPS estates, men in owned flats had a 2.1 per cent lower single parenthood rate than tenants, and women 8.8 per cent lower.
A final indicator for family stability is the proportion of single young men and women aged 18-39 living with parents. A stable family environment fosters familial bonding and encourages young single adults to stay with their parents. In TPS estates, the proportion of young men living with their parents is 3 per cent higher than in PRH estates, and for women 4.3 per cent higher. Among TPS residents in owner versus tenant flats, the figure is 2.4 per cent higher for men and 7.3 per cent higher for women.
Taken together, the Census figures provide evidence that the TPS scheme reduced family instability. But there was yet another benefit: this also reduced demand for housing.
The average household size for TPS estates from 2001-16 was 3.2, while in PRH estates it was 3.0.
TPS owner families were living together voluntarily in the same housing unit and had fewer members move out to set up a separate household. This indirectly reduced the demand pressure in the private rental market, especially for sub-divided flats.
The additional number of individuals accommodated in the larger households of the 39 TPS estates amounted to 23,900 in 2001, 19,300 in 2006, 15,600 in 2011, and 3,500 in 2016. Over the four census years, this averaged out at 15,600. If the TPS were introduced in all 220 PRH estates, one could by projection increased the total accommodation of persons within the existing stock by an average of 50,900 persons per year. The housing shortage that we are now facing would be less severe.
The average divorce and single parenthood rates would also have been impacted. Over the four census years, the TPS estates had 3,400 fewer divorced individuals and 1,700 fewer single parents compared to PRH estates. If all 220 PRH estates had adopted the TPS, the projected decreases would have been 11,800 and 8,000 respectively. This would have been a significant contribution to family stability, which could well help alleviate the concern about intergenerational immobility. And all this is in addition to the benefits of higher labor force participation rates and lower unemployment rates from the TPS that I discussed in my last article.