Public Housing in Hong Kong

 

I re-examine the history of public housing in Hong Kong and Singapore to answer the intriguing question of why the two programs are so different. I shall also put forward policy recommendations to create a market for public sector housing units in Hong Kong.

 

Every person who grew up in Hong Kong has been taught that after a 1953 Christmas fire in Shek Kip Mei, which left 53,000 immigrants homeless, the government in response initiated a policy to develop Resettlement Estates to house these stranded people. The program continued until eventually 224,000 such units were built. It is easy to conclude that a Christmas fire triggered the greatest humanitarian policy initiative in post-war Hong Kong. This is of course part of the urban myth we all grew up with. At the very most it is only one of many relevant reasons possible.

 

From an economic perspective, why after the Second World War did private developers choose to build illegal squatter units on Crown land that sat on the fringes of the urban area, without government permission? Why didn’t developers build housing units in urban areas, especially through redevelopment of existing old tenement blocks that were overwhelmingly three to four storeys high?

 

Squatters Vs Old Tenement Blocks

 

The population of Hong Kong had increased rapidly from 600,000 to 2.3 million between 1945 and 1951; surely there was a large enough pressure on housing to make redevelopment economically worthwhile. Urban geographers from the University of Hong Kong who surveyed housing conditions at that time found that old tenement blocks were far more congested than squatter units. Indeed Cantonese movies at that time correctly portrayed these conditions in their film shots – congestion in old tenement blocks and spaciousness in squatter units. Why did many of the 1,000 or so private developers at the time choose to construct illegal squatter housing units instead?

 

The answer is surprisingly simple. In 1947, shortly after the end of the war and in anticipation of the return of previous Hong Kong residents who had fled the city, the government imposed rent control on pre-war housing units. This effectively killed any possibility to redevelop the housing stock through private initiatives. As is well known from experience in all other parts of the world, rent control cannot hold down rents if the landlord can evict the tenant at the end of the contract and then raise rents with a new tenant. As a consequence, to make rent control effective, the law soon disallowed the forcible eviction of tenants. Once this happened, demolition of the existing housing stock for redevelopment purposes became impossible through private initiatives. Rent control basically halted urban redevelopment.

 

The old tenement blocks were packed with massive numbers of immigrants and returning residents. Most became sub-tenants. A small proportion of the new arrivals spilled over into squatter areas on the fringes of the urban areas by occupying land illegally. The government soon realized that development had become impossible because rent control had made it difficult to redevelop land within the urban areas and land on the perimeter was illegally occupied by squatters. The only politically feasible way to secure land for development was to resettle squatters into public sector housing units and reclaim the land they had occupied.

 

The Shek Kip Mei Christmas fire in 1953 provided an ideal opportunity for the government to introduce Resettlement Estates as a solution for dislocated households and to clear squatter areas. Table 1 shows the number of public housing units produced in the two periods 1954-1964 and 1964-1974.

 

Table 1: Number of Public Sector Housing Units Produced in 1954-1974

 

 

Number of Units

  1954-1964 1964-1974
     
Resettlement Estate     97,349   136,710
Government Low Cost Housing       5,544     62,102
Housing Authority     16,710     18,157
Housing Society       7,047     12,976
Total    126,650    229,945

 

In the first 10-year period a total of 126,650 units were produced, averaging 12,650 units per year. Of these, the largest share, 97,349, was made up of Resettlement Estate units. Admission into Resettlement Estates was not based on a means test, but due to the clearance of squatter housing areas. As a result, two perverse incentives were created. First, tenants admitted into the Resettlement Estates were not necessarily the lowest income groups in society. Indeed, some were able to afford the purchase of a squatter housing unit.

 

Second, once such a policy was in place many households living in crowded old tenement blocks now chose to become squatters with the expectation that they, too, would be resettled in time. The policy rewarded adventurous opportunistic households. Surveys of squatter settlements in 1957 showed that half of them had lived in private housing before becoming squatters. As a consequence, for each existing squatter area that was cleared, more new ones soon appeared. The number of squatters actually increased from 300,000 in 1954 to 600,000 in 1964.

 

 

Singapore Redevelops Rent Controlled Units

 

By ignoring economic means as criteria for allocating public sector housing, the Resettlement Housing program came under pressure for ignoring those without means. This led to the production of other means tested Government Low Cost Housing units. In 1964, following the publication of a White Paper with a 10-year public housing production plan, a more balanced approach to squatter clearance and means tested housing was introduced. A total of 229,945 units were produced, of which 62,102 were Government Low Cost Housing units, a huge increase from 5,544 in the previous decade. However, Resettlement Estates still took up the lion’s share at 136,710 units, or more than 65%.

 

These are pre-MacLehose era public housing production figures and they clearly reflect that the major goal of public sector housing policy in the first two decades was not chiefly to provide support for poorer households. It was to clear squatter areas for development. Other concerns like alleviating poverty, preventing social unrest, and humanitarian concerns were present but probably of secondary importance. The public sector housing program was a response to the consequences of rent control that prevented development from taking place, and to the program’s own perverse incentives that led to the further mushrooming of squatter areas which required renewed efforts to clear them.

 

The history of Singapore’s public sector housing program took a very different course. In 1947, Singapore also imposed rent control but this did not produce squatter areas because unlike Hong Kong there was no huge influx of immigrants into Singapore in the post-war period. It also did not prevent redevelopment of rent controlled units. Why not? Between 1963 and 1965, when Singapore was part of the Federation of Malaysia, Article 13 of the Constitution of Malaysia provided that no person should be deprived of property except as specified by the law, and that no law should provide for compulsory acquisition without adequate compensation. In 1965 Singapore became independent and immediately enacted a central piece of legislation for land nationalization called the Land Acquisition Act of 1966.

 

This ordinance conferred powers on the state to acquire land for any public purpose or for any residential, commercial or industrial purpose. An amendment in 1973 set compensation for acquired land as the market value at November 30, 1973 (the statutory date) or at the date of gazette notification, whichever was lower. The rate of compensation was thus independent of market conditions as well as the landowner’s purchase price. Subsequent amendments deliberately fixed the statutory dates so as to depress the rate of compensation to the landlord.

 

Singapore’s Private Property Populism

 

The terms offered by Singapore’s Housing Development Board (HDB) have been substantially more generous. Households get full ownership of their units at an affordable price. Occupant owners are free to sell the unit on the open market after five years and to keep any capital gains for themselves. Why have Hong Kong and Singapore taken such different approaches to public housing?

 

The post-war population in Singapore expanded rapidly, although it did not experience a massive influx of migrants like Hong Kong. Between 1949 and 1959 Singapore’s population grew at an average rate of 5% a year. However, as in Hong Kong, the British colonial government, which returned to power in Singapore at the end of World War II, decided to impose rent control in 1947. Redevelopment of the old tenement apartments became extremely difficult and public discontent mounted.

 

One of Lee Kuan Yew’s major electioneering points during the 1959 campaign that swept him into power was the ineffectiveness of the Singapore Improvement Trust whose record in building homes was “insufficient even to cater for the annual population growth, let alone alleviate the slum problem”. He promptly set up the HDB in 1959 to provide incontrovertible proof of the capacity of the People’s Action Party (PAP) to fulfill its pledges to the people.

 

Most would agree that although the Singapore government’s national economic development accomplishments were impressive, nevertheless its greatest showpiece achievement was its low-cost housing scheme. It changed Singapore’s physical landscape and gave Lee his first opportunity to demonstrate that he was doing things for Singaporeans. The government built 80% of the homes in the city-state. Singapore literally became “the public housing laboratory of the world” even though Hong Kong’s housing resettlement program had been initiated five years earlier.

 

At the end of the first Five-Year Plan in 1965 the HDB had built 54,000 units, well over twice the number of units completed by its predecessor, the Singapore Investment Trust, in the entire period of 1927 to 1959. The breakneck pace of HDB housing development improved the housing shortage problem, but also resulted in a huge scarcity of land available for development. Swamps were filled and land was reclaimed from the sea. Most of the fishing villages that were cleared were Malay and the cry arose that Chinese Singapore was persecuting its Malay minority and disrupting the traditional Malay kampong or village way of life.

 

To secure more land at cheap prices for the HDB projects, Singapore passed the Land Acquisition Act of 1966, which conferred powers on the state to nationalize land for any public purpose. The rate of compensation was set by statute and independent of both market value and the landowner’s purchase price. This exercise wiped out land rent gains for affected landowners, some of whom suffered actual losses having purchased their land at prices above the statutory determined value. Some landowners even had to continue with mortgage repayments for land which had already been acquired by the government.

 

Fires of Convenience

 

The result of this was that the proportion of land under state ownership increased from 44% in 1960 to 76% by 1985. T J S George described another process by which land in the slum areas became available for redevelopment:

 

 “Sometimes nature felt obliged to help. In 1968 a major fire broke out in a Havelock Road shanty town which had refused to liquidate itself despite constant government warnings about disease, theft and fire. It was Singapore’s worse fire in seven years. It was suddenly discovered that only five engines were available to fight it. Water pressure in the neighborhood turned out to be inexplicably low. The hydrants were insufficient, the hose damaged or leaky. Even winds proved treacherously changeable. To cap it all the firemen did what a press report at the time described as ‘rather odd target selection’. In no time the fire completed its course and cleared an area occupied by some 200 huts. Soon another high rise building covered it.”

 

“The fire that had raged seven years earlier was strikingly similar. It too had completely razed a shanty town and immediately made way for another Housing Board estate. There were other smaller fires in other recalcitrant slums, each followed by housing development. Singaporeans began happily talking about ‘fires of convenience’.”

 

This is probably one of the reasons why the government of Lee Kuan Yew has not been able to shake off its populist authoritarian image despite being one of the early democratically elected governments in Asia (and one of the few) and having a stellar record of being free of corruption.

 

Housing development was the cornerstone of Singapore’s national development strategy. It provided visual evidence of progress for all to see. It gave Lee’s populist authoritarian government concrete confirmation of its concern for the ordinary people. It created a building boom that provided sustained stimulation for economic progress. Most importantly it bought political support for the People’s Action Party. It dispelled and dispersed the leftist political forces that lurked in the slums, the breeding grounds of political dissatisfaction.

 

The government’s single most significant decision was to pass onto the HDB occupant the entire land rent it captured. All HDB properties can be either rented or owned; initial renters may subsequently purchase their unit. Both rents and prices are set at heavily subsidized rates. After five years from the date of effective purchase, owned units can be sold on the open market. There is no requirement to repay the subsidized premium. In addition, the owner of an HDB unit can also sublet it in whole or in part on the open market. These prudent measures have created a private propertied citizenry in Singapore that has provided unwavering stable support for the political leadership over the decades. They have also created a free market in HDB housing units that strengthens the foundations of a free private market economy.

 

HOS Under MacLehose

 

What the Singapore government did, but the Hong Kong government avoided doing, was to take away the rights of property owners of private housing by forcing them to sell to the state at very low prices set by the law (not the market). In 1960, the state owned 44 percent of the land in Singapore. As a consequence, the effect of rent control in preventing re-development was offset. This exercise wiped out land value increases for affected landowners, some of whom suffered actual losses, having purchased their land at prices above the 1973 price. By 1985, the proportion of land under state ownership had increased to 76 percent. A considerable proportion of the land “taken” from landlords was used for constructing Housing and Development Board (HDB) units.

 

The decision not to take away the rights of private property owners in Hong Kong reflected in part the influence of the capitalist free market philosophy of Cowperthwaite, who was not a socialist statist like Lee Kuan Yew. Cowperthwaite served as Financial Secretary from 1961-1971. Perhaps the bounded legitimacy of a colonial government in post-war Hong Kong also prompted it to tread more lightly on the rights of residents.

 

On the other hand, Singapore had designed a public housing program that was far more market-oriented than Hong Kong. In an odd way this is not surprising. Having forcibly taken away the rights of private property owners under the Land Acquisition Act and offering them in return HDB units, the Singapore government had to make these units sufficiently attractive. Allowing a market in HDB units enhanced the appeal of these units. What Singapore ended up doing was to replace large tracts of private housing stock with public blocks. Property rights were first taken away and then returned in another form. This is also why most of Singapore appears sanitized and sterile. Overall Singapore had a far more big brother government.

 

MacLehose assumed Governorship in 1971 after a period of civil unrest following rapid economic growth in the territory and political turmoil across the border. He quickly recognized the stabilizing value of expanding the public sector housing program, as well as other initiatives in education, social services and health care. He made housing policy the centre piece of his first speech to the Legislative Council in 1972, calling for the construction of 350,000 units over a ten-year period. Ultimately a total of 176,623 Public Rental Housing (PRH) units and 23,020 Homeownership Scheme (HOS) units were constructed.

 

MacLehose essentially expanded the existing public sector rental housing program. As squatter areas were disappearing, the program metamorphosed into a means tested program for eligible households, delivered by the Housing Authority. But the large scale of the earlier resettlement program meant that households in public rental housing units would always be a mixture of former squatters and those who were without means at the time of their admission.

 

Housing Estates Limit Job Choice

 

The effect of such expansion was to bring an increasingly larger proportion of the population into the program. It led to the establishment of large public sector housing estates in satellite towns with multiple long-term consequences. The crucial one is that these inhabitants became immobile and nailed to their units in estates that were far away from choice jobs, choice schools, and relatives and friends. The inhabitants became essentially “housing serfs” who were bribed with low rent to accept their condition.

 

The HOS program was conceived under MacLehose’s tenure and reflected his recognition that Hong Kong residents aspired to become homeowners. Such an aspiration could have been easily met in the 1970s by allowing existing rental units to be purchased by tenants at subsidized rates as was the policy in Singapore. This did not happen. Instead the new category of HOS units was created and kept separate from subsidized rental units. No consideration appears to have been given to uniting these two into a single program; a situation that implicitly assumed only households that improved their economic circumstances should become homeowners. The rest of public rental housing households – a significant 30.8% of all households in Hong Kong – were condemned to remain tenants for life. The MacLehose housing program was poorly thought through in this respect. There was no attempt to harness the power of the market to meet the needs of households.

 

Just how poorly thought through the HOS program would became evident within a couple of years after its launch in 1978. Initially, the units were sold at a 30% discount from the market valuation, a boon for purchasers. The government originally intended to provide an explicit subsidy for HOS units with no requirement to repay the subsidy if the unit was resold subsequently on the open market after a 5-year period of occupation. The significance of such an arrangement was that it made the HOS owner a bona fide owner of the property.

 

But this arrangement was abandoned in 1982 after property prices in the market escalated rapidly. The 30% discount off market prices was no longer affordable for eligible households. As an alternative, the government decided to sell HOS units at development cost. However, the value of land was deemed unpaid and as a consequence the HOS unit could only be sold on the open market after the premium had been paid up, a figure that was estimated based on the market value at the time of the sales transaction. A 10 year occupation requirement was also introduced. These arrangements meant that the option to sell the HOS unit on the open market was conditional and was not often exercised. Thus, HOS occupants also become nailed to their units in the same way that PRH tenants were.

 

These two different HOS purchase arrangements meant that only those who purchased in the first two years of the program were bona fide owners, who could capture the appreciation in value of the unit they acquired. I reported in my article two weeks ago that the average market value of units in Sui Wo Court, Phase I, Sha Tin and Chun Man Court, Ho Man Tin, which were sold in those first two years, had appreciated by 18.2 times and 25.6 times respectively over their original sales prices. HOS purchasers who bought after 1981 were only pseudo-owners because they could no longer capture the appreciation of the property they purchased and effectively could not sell the unit as the unpaid land premium appreciated beyond their affordability.

 

Today 47.0% of Hong Kong’s households live in public sector housing either as renters or owners. But their rights as renters or owners are significantly less than those in Singapore’s Housing Development Block units because the Hong Kong government has failed to create a market for public sector housing.

 

Hong Kong Public Housing Lacks Free Market

 

Singapore in effect has pursued a sort of selective discriminatory urban land reform. It has broken up some of the traditional old land ownership order to achieve national development objectives. Certain parcels of private land have been nationalized and redistributed to some 80% of ordinary citizens through the HDB program – although the government’s reputation in fostering economic equity and social fairness is far from untarnished given the discriminatory nature of the nationalization of land.

 

The Singapore and Hong Kong approaches to public housing therefore have been quite different. Lee Kuan Yew’s government was committed to nation building and giving the people of Singapore a stake in their future. It gained legitimacy through its struggles against the British colonial government and other political rivals. It was also in a hurry to pursue national development. Its draconian policies to reclaim land from owners had to be justified on higher moral grounds and with more exalted social goals.

 

On 28 June 1959 Lee told a gathering of workers that his mandate was clear: to bring about by peaceful and constitutional means an independent, democratic, non-communist, socialist Malaya. He said, “It is necessary to state categorically that we are democratic socialists, and that we subscribe without reservations to the theory and practice of democratic socialism on which the PAP is based.” (see Josey pp. 97) The HDB program now houses 80% of the population of Singapore, of which 90% are homeowners. It has, in the view of Premier Lee Hsien Loong, given to the vast majority of Singaporeans an asset that allows them to benefit from a more prosperous Singapore. Everyone has an economic stake in the future of their nation.

 

The HDB program has also ensured that land, a scarce and valuable asset in Singapore, is held privately and allocated through the market. As a result, it is used efficiently to the benefit of everyone and the economy as a whole.

 

With almost all land held privately, everyone has a stake in Singapore. For example, the city-state’s environment is far better protected for than that in Hong Kong, even though almost all land in Singapore is occupied while in Hong Kong vast tracts of land are held publicly for conservation purposes and not occupied. Privately-held land gives everyone a stake in their environmental future and provides powerful individual incentives to safeguard against environmental degradation.

 

It is truly ironical that a government proclaiming to be socialist made the decision to let HDB occupants either rent or purchase their flats at a deep discount and to possess the right to sell these flats on the open market without having to pay government any land premium. It makes a mockery of Hong Kong’s famed reputation as a bastion of free market capitalism. Singapore adopted a policy to give all citizens private property at a price they can afford. Hong Kong chose to keep its citizens enserfed to their public housing units as tenants or pseudo homeowners without full possession of the units they occupy.

 

It may be useful to consider what taxpayers lose when they give away a housing asset but then limit the recipient to using it only as a shelter. In my article published in the HKEJ on 14 September 2011, I reported that estimates of this loss were 0.95% of GDP in 1981 and 0.53% of GDP in 1991.  These are very large losses for society in one year. And when we compound such losses over more than 50 years of public housing, the losses are enormous. I believe these are likely to be low estimates because the losses depend on the market value of the land premium. The premiums have increased considerably since 1981 and 1991 when these estimates were made.

 

Just to illustrate the magnitude of the losses it is useful to compare the per capita GDP growth rates of Singapore and Hong Kong, starting from Singapore’s independence in 1965 to 2010. The Figure below gives the real per capita GDP profiles for the two cities in their own currency. For ease of comparison the values have both been normalized to 100 in 1965. The two lines show that throughout the period Singapore grew faster than Hong Kong at an average annual rate of approximately 1.35%. As a consequence, a Singaporean who started with $100 in 1965 was making $1,167 in 2010, but their Hong Kong counterpart was making only $655. The Singaporean had 78% more.

  

As I explained in my article published in the HKEJ on 7 September 2011, Singapore allows for an active market in public housing units. This means it does not suffer the kind of deadweight social welfare losses that are present in Hong Kong in both public rental housing and Homeownership Scheme (HOS) units. This factor alone could easily account for most, if not all, of the differences in per capita real GDP growth between Singapore and Hong Kong. The same Figure below plots the projected real per capita GDP profiles for Hong Kong under two scenarios.  Scenario 1 adds 0.5% to the growth rate and Scenario 2 adds 1%.

 

I conjecture that even Scenario 2 underestimates the losses to society of not allowing a market for public sector housing units because it measures only static losses – those that result from denying households the ability to capture the appreciation in land values. The dynamic losses have not been included – these would be the potential gains that could be realized if a person with more resources spends them on enhancing his productivity and that of others.

 

So what is social justice?

 

If we do not allow public sector housing occupants to trade their units on the housing market, then society will lose the value inherent in that asset. Such a loss is borne by everyone, including taxpayers. What is happening is this: well-off households are giving $500 worth of assets to less well-off households, but their use is restricted to shelter only. The land values are partly evaporated and therefore lost to all. All households suffer a decline in income as resources are destroyed by limiting their use.

 

If instead we allow a market to exist, then the less well-off households gain a share of the value of the land that would otherwise be lost, and in so doing they put the land resources to better use and raise the income of everyone. It is a win-win scenario. Which outcome is more socially just?

 

Surely what we want is to yield more resources for all, allow people to have greater freedom of choice, and build a better community. These are the central concerns of justice among the great philosophers in the last century. John Rawls was concerned about helping the poor and this depended upon having resources; Peter Nozick wanted to uphold the rights of individuals and argued for more freedom of choice; and Michael Sandel was concerned with how to achieve justice through a better community.

 

Another issue raised in the comments is the appropriate level of subsidy and what form it should take. 

 

In a functioning public sector housing market, the crucial issue is whether the household can afford to purchase another unit when he sells his original unit. If this is largely impractical – for instance, if a substantial portion of the proceeds from the sale have to be returned to the Housing Authority as unpaid land premium – then there is no incentive to sell and the market ends up with very few transactions.  So the issue is not one of greed or windfall gains, but whether the market is a real one or simply exists on paper. 

 

Consider the following three conceptual options as to how the unpaid land premium could be settled. I shall ignore for the time being whether the units are existing HOS or Tenant Purchase Scheme (TPS) units, or new units to be built in the future.

 

Option 1: The owner of an HOS or TPS unit has the right to pay the unpaid land premium at a time of his choice after an initial holding period during which sale is prohibited. This was initially 10 years then later modified to 5 years. So if Mr. Wong purchased an HOS unit in 1985, he could choose to repay the land premium any time after 1995.

 

Suppose he decides to repay in 1999 when the property market hits bottom. If he cannot afford the required amount, he can theoretically find a “phantom banker” to mortgage his unit at an interest rate of 3%, which is approximately the average real mortgage interest rate after inflation over the period 1980-2010. He then signs his unit over to the bank as collateral and structures his loan so that he will pay back both the accumulated interest and the loan principal at the time when he actually sells the unit. He and the banker can agree that the period where he can exercise such an option is very long, say 50 years. He then takes the borrowed money from the banker and repays the Housing Authority and settles the land premium.

 

The problem of course is that such a banker does not exist in the market place. No banker would be willing to make such a deal. This is a case of capital market imperfection. Bankers are unwilling to lend to a household with a poor credit rating on such terms; so that is why this is a “phantom banker”.

 

The government is ideally positioned to step in and become this “phantom banker” and even make the 3% real interest rate. This would enable Mr. Wong to exercise his right to “fix” his land premium in 1999. When he sells the unit on the market in 2008, he will just have to surrender to the Housing Authority a sum equal to the land premium as fixed in 1999 plus 9 years of interest accumulated at a 3% real rate. Actually there is no subsidy in this interest rate since 3% is the market rate. It is possible the rate could be set below 3% or even at zero if that is what society feels is acceptable. The public may even be willing to grant an unlimited time period for Mr. Wong to sell his unit.

 

This method of settling the unpaid land premium is exactly the present arrangement, except for having government step in to play the role of a “phantom banker”. In other words, government is stepping in to correct a capital market imperfection that not well-off households face in borrowing money. The right to choose the date to fix the land premium is a right Mr. Wong already has now. All government has to do is to help him exercise it.

 

Since society, including taxpayers, benefits from establishing a market in public sector housing units, then there is a case for government to charge less than a 3% real rate. Indeed without an active market in public sector housing it is unlikely for the taxpayer to every collect any significant amount of the unpaid land premium because there will be no transactions.

 

Option 2: An alternative approach is to fix the unpaid land premium at the original date of purchase. In the case of Mr. Wong this would be 1985 rather than anytime after 1995 as proposed in Option 1 above. Once the land premium has been so fixed, the government would show up to perform the role of the “government as banker”. Of course if 1985 is at the bottom of the market this will be great for Mr. Wong, but if it is at the peak then he would have a nightmare and most likely would refuse to accept the unit if given a choice. Once the land premium has been fixed, the government would then perform the role of the “phantom banker”.

 

Option 3: A third approach is to fix the unpaid land premium as a multiple of the qualifying household income for admission into the program. While this has clear predictability, it is ad hoc and may from time to time diverge substantially from market levels. As with the other two options, once the land premium has been fixed, the government would be the “phantom banker”.

 

To fix the unpaid land premium for future public sector housing units, one can adopt either Option 1 or Option 3. For existing or old HOS and TPS units, Option 2 or Option 3 could apply. Personally I prefer Option 1 for future units and Option 2 for existing or old units. This is largely because I find Option 3 ad hoc and arbitrary, but I am not dogmatic about this. 

 

For government to sell a unit at a discount and retain an equity interest in the land value is almost a feudal practice. This is almost like serf masters telling their serfs, your offspring must work for me and so must their offspring too. With “phantom bankers” the worst you get is a 3% real interest rate.

 

Hong Kong’s Tortuous Relationship with Land Development

 

The rise of Hong Kong’s public housing program can be ultimately traced to three factors. First was the arrival of new immigrants that increased the population from 600,000 in 1945 to 2.3 million in 1951. Second was the effect of the government’s disastrous imposition of rent control on pre-war housing in 1947. And third was the government’s hostility to development in the early years of the post-war period. The huge increase in the demand for housing was met with policies that made it extremely difficult for developers to redevelop the existing housing stock. An effective private sector supply response thus was prevented.

 

The rent control measure enacted in 1947 was conceived as a temporary response to the anticipated return of people to Hong Kong at the end of the Japanese Occupation. But it created a truly devastating set of consequences because this inflow turned into a massive influx of refugees escaping a raging civil war in China and the collapse of the Guomindang regime. Temporary rent control measures then became permanent ones with calamitous long-term consequences.

 

In 1947 the Un-official members of the Legislative Council representing property and business interests were very critical of government impediments to private development and called on the government to remove all unnecessary regulatory barriers. These voices were effectively brushed aside because Officials made up the majority in the Legco. All the Un-officials voted against the government to no avail.

 

The issue was important politically because any new development or redevelopment required extensive consultation with the government due to the Crown monopoly of land ownership, the imposition of numerous lease conditions and the use of the Building Ordinance to vet all development proposals. Because of these conditions, development could not take place easily or quickly. When housing was in high demand, the ensuing bottlenecks resulted in high land prices at auction and expensive housing prices and rents.

 

The Un-officials members realized that the situation had to be remedied. Unfortunately, according to Professor Alan Smart, “for a combination of technical reasons, bureaucratic interests, distrust of private developers as speculators, concern for government revenues, a commitment to town planning and building standards, and a concern of some officials that the workers not be exploited by high rents and low standards, the government resisted these pressures” (pp. 38-39).

 

When the government began to run out of land for development, a shortsighted resettlement policy was introduced to clear squatter areas. Squatter rights were largely ignored except for resettlement purposes. The program mushroomed into a massive permanent public housing policy where tenants in the old private tenements realized that the better way to get out of their cramped living conditions was to settle in squatter areas from which government would resettle them, rather than wait for private redevelopment.

 

In 1953, on the eve of the launching of the resettlement program, there were only 300,000 squatters who made up about 10% of the population at that time. By 1964 their numbers had doubled to 600,000 and constituted 20% of the population. It is ironic that the much acclaimed achievement of the grand public housing program was in effect a remedial measure necessitated by initial government folly.

 

It is worth noting that very little of the land that came available in this period was allocated to private development. From 1945 to 1958 no more than 200 acres of land were made available for development in the urban areas, of which less than 30 acres were auctioned. The rest was granted by private treaty, primarily to non-profit projects. An SCMP editorial urged “the government to form sites for sale to builders to resolve the housing shortage since many squatters can afford regular dwellings” (31 December 1958).

 

Private developers meanwhile were building squatter housing units to be sold or rented out to those who either could no longer tolerate the old private tenements or were prospecting for resettlement opportunities. The squatters could afford to pay what was described by government officials at that time as exorbitant prices and rents.

 

Given all the constraints, the market accommodated the influx of immigrants well, although the population paid for it in terms of high rents, overcrowding, and inadequate facilities. The supply of legal private housing units was constrained by the rent control on pre-war housing and also by the government attitude towards development. Private developers supplied illegal squatter housing by building on Crown Land without permission, especially agricultural land. Some of these illegal structures were even elaborate, multi-storey, reinforced concrete buildings. At one point there were over 1,000 developers operating in both the legal and squatter markets. The real difference between the two markets was whether permission had been granted by government to use the land and build on it.

 

The government naturally blamed private developers for exacerbating the squatter problem. It is amusing to read the appalling hypocrisy in an official justification for the housing resettlement program: “[B]y this resettlement program we are breaking a ‘racket’ ….If we can give these people living space at a fair rent, and if we can do this on a really large scale, we shall knock the bottom out of a ‘racket’ which helps keep the cost of living up” (Hong Kong Hansard, 2 March 1955, p.40).

 

Lima’s Other Path

 

Are there alternative solutions to an explosive growth in housing demand resulting from the arrival of immigrants into urban centers? Economist Hernando de Soto’s account of the efforts to understand and resolve the squatter settlements in Lima, Peru shows an alternative approach that Hong Kong should seriously consider adopting at this time to resolve its housing problem.

 

The population in Peru grew rapidly from 7 million in 1940 to almost 18 million 1981 at a rate of about 2.3% a year. The increase was substantially greater in the capital city of Lima, where the population multiplied by 7.6 times from about 600,000 in 1940 to 4.6 million in 1981. In 1940 the city housed 8.6% of Peru’s population; by 1981 it was housing 26.0%. A substantial part of the increase came from migrants whose numbers increased from 300,000 to 1.9 million between 1940 and 1981.

 

When the migrants arrived in Lima they encountered a hostile world. The urban dwellers did not want the peasants to descend on the cities. Assistance and development programs for rural areas were designed to ensure that the peasants improved their lot back home, well away from the cities. Civilization was expected to go to the countryside; the peasants were not expected to come looking for it.

 

The hostility was extreme. A ban was imposed on the construction of cheap apartments. Migrants found that it was tremendously difficult for them to access many legally established social and economic provisions, such as housing and education, and to enter business or get a job. Peru’s legal regulatory system had been developed to meet the needs and bolster the privileges of dominant groups in society. Before the peasants arrived the implicit discrimination in the legal regulatory system was not apparent. But it quickly was revealed when large numbers of migrants showed up.

 

In order to survive, the migrants had to live a life outside the formal economy and society, without the protection of the law. They lived, for example, in illegally built houses in shanty towns – equivalent to Hong Kong’s squatter areas – and they worked as illegal street vendors, again a common sight in post-war Hong Kong.

 

These individuals were not criminals as such, but they violated specific legal regulations that denied them their rights. As a result they became branded as the “informals” and in the late 1980s constitute 48.0% of the economically active population in Peru. They contribute 38.9% of Peru’s GDP and 61.2% of work hours are devoted to informal activities. Their neighborhoods are acquired and built outside of the law in exactly the reverse order to what happens in the formal world: they first occupy the land, then they build on it, next they install infrastructure. Subsequently they may gain title for their dwelling, and only at the end do they acquire ownership.

 

Hernando de Soto estimated that the replacement cost of the informal housing built in the period 1960-1984 amounted to US$8.3 billion, accounted for 42.6% of Lima’s dwellings and housed 47% of its population. In the same period, the total public investment in housing in the formal economy, including investment in middle-class housing, totaled US$862.2 million. This was a mere 10.4% of the informal investments.

Hernando de Soto估計,利馬在1960-84年間搭建的非常規房屋佔全市住所42.6%、居民47%,全部重置成本要花83億美元。同期內,常規經濟在房屋上的公共投資,連同中產屋也不過8.6億美元,只是非常規投資的10.4%。

The Informal Acquisition of Property Rights

 

Hernando de Soto found that life in the informal settlements was neither anarchic nor disorganized as many erroneously imagined. The settlers had evolved a set of extralegal norms to regulate social relations in the settlements. These informal settlements had elaborate governance and management organizations to foster stability and security for the acquired dwellings and the inhabitants.

 

The order in these settlements can be better understood by looking at the process by which the migrants acquired property. Land was acquired in two ways: by illegal purchase of agricultural land or by invasion of government land. Invasions that were organized could be gradual or violent and involved a hundred or forty thousand settlers. The invaders drafted meticulous plans – including an invasion contract – with the help of professional invaders comprising unionists, lawyers, businessmen, politicians and others. The planning covered operational, organizational, political, legal, and publicity dimensions. The establishment, demarcation and distribution of the land to be acquired are first drawn up in an agreed invasion contract among the invaders beforehand.  And once the invasion was executed, informal governance and management organizations of the settlement were rolled out.

 

The invaders quickly set up various facilities within the settlement, like day care centers and communal kitchens, and negotiated with the nearest minibus operators to extend a route to the new settlement. Street vendors sold food and building materials and other provisions would appear. Law and order was maintained through organizing defense pickets. A common practice was to name the settlement after the President’s wife or some prominent political figure in an attempt to persuade that person to endorse the settlement.

 

The immediate effect was the establishment of a right to the land. But this right was merely an “expectative property right”, established by one’s own initiative outside the legal framework. It applied temporarily until such time as the government conferred definite ownership on the members of the informal settlement or, with the passage of time, popular organizations became able to defend it as effectively as the state.

 

The route to legalizing the settlements was difficult. As many as 159 bureaucratic steps had to be completed in order for residents to receive title to their lots and incorporate the neighborhood into the city – a process Hernando de Soto estimated would take on average 20 years to complete. When this occurred the settler had enhanced security and stable rights to the dwelling he acquired through invasion. However, this did not signify complete integration into the formal legal system – rather, it was exceptional recognition. Still the settlers regarded this recognition as decisive for increasing their investment in their dwelling and settlement. Thus, the greater the security of their property, the greater the investment they would make in it, and vice versa.

 

Hernando do Soto studied a sample of 37 informal settlements across Lima and found that the average value of buildings whose owners had received full legal title was 9 times that of buildings whose owners did not have title. These figures suggested that “expectative property rights” did not provide sufficient incentive to invest large sums of money in one’s house and in the settlement. People had to be able and willing to invest at least 9 times more to get some measure of protection from the formal legal system.

 

Without a definitive title, selling the land and renting out the buildings resulting from an invasion were prohibited by law. Residents therefore were always vulnerable, which forced them to take a number of costly precautionary measures. The situation was particularly difficult when it came to disposing of property.

 

When informals wanted to sell, they would claim they were transferring the buildings but not the land itself in order to disguise the sale. Moreover, as there were still no definitive rights and the system of extralegal norms only protected those who had devised it, the transfer had to be approved by the residents of the settlement. Buyers also had to demonstrate their adherence to the invasion contract and any supplementary agreements.

 

Renting was equally tricky. Because the tenant occupied the dwelling, informals feared the government would come to recognize the tenant as the owner of the land. Informals often preferred to disguise the tenancy as a lodging arrangement and the owner stayed or pretended to stay in the building with the actual tenant.

 

Hernando de Soto’s study became enormously influential throughout Latin America and the world. Many countries have established research centers devoted to the study of informality. In Peru, the government adopted his proposal to grant immediate legal land and building titles to all the settlers for free to bring them back into the formal legal economy. Half the population in Lima became empowered literally overnight. A massive makeover was initiated in the shabby looking informal settlements as settlers began to invest in their dwellings and the community. The Peruvian economy experienced a prolonged recovery and growth.

 

The work to bring the vast informal Peruvian economy back into the formal economy also had important political consequences. It undercut political support for the terrorist movement known as the Shining Path and restored political stability in Peruvian society.

 

Tsoi Yuen Village and North East New Territories 

 

Opposition is currently mounting to a government plan to reclaim land to build three new towns, known as the North East New Territories New Development Areas. The project has raised the troubling issue of differences in the treatment of indigenous villagers who lived in the New Territories before the British took control in 1898, and those who arrived more recently – the non-indigenous villagers. The same kind of conflict came to the fore over Tsoi Yuen Village, which was demolished in 2011 to make way for the high-speed railway link to Guangzhou.

 

These conflicts stem from complications over land ownership. Indigenous villagers are owners of the village land they live on. They possess legal title to their land and dwellings. Non-indigenous villagers are more like squatters, whose presence on government land has been “tolerated” as long as they do not develop it. Unlike urban squatters, they have not occupied land that is keenly sought after for redevelopment, so for decades they have not been resettled into public housing. Some of them have bought land from the rural gentry but received no paper records of the transactions. The origins and status of non-indigenous villagers in relation to their occupied land and dwellings are essentially similar to the Peruvian “informals” in their settlements.

 

Indigenous residents occupying village land are protected under the law, including by the Basic Law. Since they own the land they are naturally entitled to at least fair market compensation from the government, including continuing their chosen lifestyle in another location. They therefore have good reason to support government initiatives to redevelop their property.

 

Most non-indigenous villagers, however, are not granted such protection because they do not have and cannot possess legal title to the property they occupy. They are either squatters on land without legal permission or purchasers of agricultural land without land title. Their status is essentially identical to the tolerated “informals” in Lima. At best they will be offered limited compensation (for example, $600,000 n the case of the Tsoi Yuen villagers) or a place in urban public housing when they are forced to move on. In essence, their options are identical to the ones available to squatters whose homes burned down in the Shek Kip Mei fire some 60 years ago.

 

Just as the Peruvian “informals” had the service of a team of professional invaders who helped them to organize an invasion contract, settle in, keep order in the settlement, and fight for their “expectative property right”, Hong Kong also has  political and social advocates that provide support for the non-indigenous villagers. They are motivated by either their civic opposition to government, a conservationist ideology to preserve an alternative lifestyle against urbanization, resistance to encroachment by anything associated with the mainland or mainlanders, or a “city state” political mindset. Many are politicians and politicians in training.

 

Non-indigenous villagers in Tsoi Yuen Village and the North East New Territories have been settled in these villages often for decades. Their dwellings have long been tolerated by government just as Lima’s informal settlements were tolerated. The villagers have made investments in their dwellings, many of which are spacious, and they are familiar with and attached to their village neighborhoods.

 

It is far from obvious that a public housing unit in the urban area would be adequate compensation. As with their village home, a public housing unit would not offer full private property ownership rights. The villager would become either a tenant or a partial owner of an HOS unit that cannot be disposed of without paying an exorbitant land premium. The compensation package they would receive would have no upside potential because the government subsidized housing unit provides shelter only; it is not a bona fide asset.

 

Is it surprising then that the attitudes of non-indigenous villagers are completely different from the indigenous ones? The difference stems from property rights as they are recognized by the government. The “expectative property right” of the rural squatter today is different from the urban squatter of yesterday. If the government wants to  redevelop land in the New Territories, it  has two choices: either recognize that the non-indigenous villager has legal property rights over their dwellings and land  or offer a better compensation package. The former path is similar to Peru’s, the latter to Singapore which will be discussed next week. But if the government sticks to the present policy, it will have to pay a very high transaction cost for every redevelopment project. And society will be divided again and again.

 

In the recent political show of force at the public forum on redeveloping the North East New Territories a scuffle broke out when some participants raised the English flag. I have no idea whether these individuals are loyalist of the ex-colonial government, but the Peruvians had found similar gestures to be a worthwhile political theatrical. The Peruvians often named their newly successfully invaded settlement after the President’s wife or some celebrity political figure in a bid to gain their support. Political theatricals are the same the world over whatever your history. It took the Peruvian government 60 years and a terrorist movement to change its policy.

 

Stranded between Singapore’s Way and Lima’s Other Path

 

Squatter areas (also known as shanty towns) appeared in Lima and Hong Kong after the arrival of large numbers of migrants. In Peru, these migrants were forced to live in shanty towns because of the hostility of the urban dwellers who denied them opportunities in the formal economy to find housing, education, and jobs and to set up businesses. In Hong Kong a set of misguided policies to impose rent control on pre-war housing units, coupled with hostility to easing development, literally pushed some migrants seeking shelter into squatter areas. 

 

In both Lima and Hong Kong, squatter areas mushroomed in the fringe areas around the city. In Lima, the shanty towns grew so large that they eventually housed more than half the city’s population. The informal economy became as large as the formal economy. The Peruvian authorities never developed a public housing program to resettle the informals and provide them with alternative shelter. After a protracted period of political struggle the informal settlements became tolerated by the state. Eventually the squatters were granted legal land titles and reincorporated back into the formal economy after Hernando de Soto’s illuminating and influential work highlighted the sheer folly of denying the squatters their rights to the property and settlements they had built up.

 

Post-War Explosion of Squatters

 

This decision made compelling economic sense. The Peruvian squatters had built up and made good economic use of the state land they had invaded, without permission, over several decades. Some of these settlers had purchased agricultural land without permission and built them into settlements and their ownership rights were also recognized. Granting the squatters the right to possess what they had occupied and built up was ultimately advantageous for society as a whole.

 

In Hong Kong, squatters have been handled very differently. The growth in squatter areas meant land available for development became very scarce, which was increasingly evident as businessmen could not find land to build industrial factories. Jobs and economic opportunities were being threatened in a city with a rapidly rising population. The situation was worsened by rent control legislation that made it extremely difficult to redevelop old private tenement blocks in the urban areas. In a bid to clear squatter areas for development, the resettlement program was adopted.

 

Resettlement created powerful incentives for migrants living in cramped old private tenement blocks to become squatters and be resettled in larger public housing units. The number of squatters exploded. The resettlement program eventually evolved into a massive public housing program that currently accommodates half the population of Hong Kong.

 

Today two competing criteria are employed to determine who is admitted into the program. The original criterion was squatter households affected by government decisions to clear squatter-occupied land for development. They did not have to be means tested, which in effect meant the resettlement program was a carrot to soften the political resistance of those who had to be cleared from the land. Means testing was introduced as an additional criterion later on to assist and pacify poor households that did not benefit from land clearance. This assistance to households without means made the resettlement program more politically and morally acceptable. 

 

Squatters who accepted the subsidized housing essentially surrendered their uncertain rights to the dwellings they occupied on squatter lands. This is a key difference with the Peruvian squatters, who never surrendered their uncertain rights and who were eventually triumphant in getting government to recognize that they possessed legal rights over their dwellings and the land they occupied. But since the Tsoi Yuen Village incident in Hong Kong, non-indigenous villagers here have also sought political recognition for their uncertain rights as rural squatters. 

 

Hong Kong squatters are usually offered a tenancy in a public rental unit. A very few have been offered a Homeownership Scheme (HOS) unit. However, since HOS units cannot be disposed of on the free market without first repaying to government the unpaid portion of the land premium, their real value is substantially reduced. Given these restrictions, it is not surprising that the Tsoi Yuen villagers said the terms of offer for resettlement, as presented to them on 16 January 2011 by the Under Secretary for Transport and Housing, were unacceptable.

 

Lessons for Hong Kong

 

In dealing with the problem of rising urban housing demand due to population increases, Lima, Singapore and Hong Kong have demonstrated critical differences in their responses. All three cities had shanty towns or squatter areas. Lima did not embark on building a massive public housing program to replace its shanty towns in the manner that Singapore and Hong Kong did. The shanty towns in Lima were an important part of the informal economy and also the breeding grounds of supporters for the terrorist movement.

 

The Peruvian government adopted the recommendations of Hernando de Soto to give legal land titles to the occupants in the shanty towns. Peru allowed the occupants to retain the entire value of the land premium for free and with full unfettered, untaxed transfer rights. In so doing, it strengthened the foundations for a private market economy and a stable political system. Hernando de Soto sub-titled the first edition of his book The Silent Revolution in the Third World, but in the second edition he sub-titled it The Economic Answer to Terrorism.

 

Both Hong Kong and Singapore decided to get rid of their shanty towns by resettling the occupants into high rise, publicly built housing blocks. Singapore decided to allow the occupants to keep the value of the land premium for free. They became bona fide full owners of their housing units. Most Singapore citizens became private property owners through the goodwill of the government. They naturally became staunch supporters of the government and supported policies to protect the value of their private property.

 

Hong Kong rid itself of shanty towns gradually compared with Singapore’s breakneck pace, but failed to share the value of the land premium with the occupants in the high rise public housing blocks. The occupants became tenants or pseudo homeowners who could not rent out their housing units or dispose of them without many restrictions. They have remained enserfed to their housing units and to the Housing Authority and their many and growing complaints form a pool of cumulative demands that have turned them into critics of the government. Large swathes of land are locked into an inflexible land use policy which does not allow the occupant to do anything but use it as shelter. Public housing without ultimate private ownership has worsened the division between the haves and the have-nots.

 

Despite Singapore’s self proclaimed commitment to democratic socialism, it laid a solid foundation for a people’s private capitalist economy to take root. Hong Kong’s private capitalist economy foundation is in this respect much less firm at the grassroots level. And this is the cause of Hong Kong’s many woes in recent times.

 

In the end Singapore accomplished the same thing that Peru has in Lima, which is to make almost all of its citizens property owners. There is one difference. In Lima the dwellings and settlements were built by the occupants. In Singapore the government built them. Visually the two cities look very different. There is far more homogeneity in Singapore.

 

Squatter clearance everywhere is a brutal political process that generates considerable resentment. Hong Kong has dealt with it by providing resettlement in high rise public housing blocks for affected households.

 

If Hong Kong’s Housing Authority (HA) did not require exorbitant payments for the land premium on HOS units, then the offer of an ownership unit to non-indigenous villagers in Tsoi Yuen Village a year ago and in the North East New Territories today would be much more attractive. The HA unfortunately inherited these poorly conceived housing policy measures from the government in the 1960s. These policy measures have become a hindrance to redevelopment in the New Territories.

 

Public consultation on the North East New Territories development area was initiated long ago yet the recent complaints from non-indigenous villagers suggests that the only key stakeholders consulted were the indigenous villagers. The non-indigenous villagers only became a political force to be reckoned with last year when the decision over the high-speed railway project had to be made.

 

Even so, it has taken a very long time to consult indigenous villagers whose rights are much better recognized than those of non-indigenous villagers. There is certainly room to find a way to lower the transaction cost of developing the New Territories. I believe this will depend on greater clarity and recognition of the rights of all inhabitants, to give them better security and stability and where necessary to offer more attractive compensation in exchange.

 

Creating Markets in Four Steps

 

It is not difficult to rectify the situation in Hong Kong. The government can take four steps towards this:

 

First, reintroduce the Tenant Purchase Scheme (TPS) for all or most of the existing PRH units. The purchase price of these units should be set at the development cost of the units. The unpaid land premium should be set at a discount to the estimated market value at the time the units were completed; not at the value prevailing today or when the future transaction takes place.

 

Second, for all existing HOS units, the unpaid land premium should also be set at a discount to the estimated market value at the time the units were completed, again not at the value prevailing today or when the future transaction takes place.

 

Third, all future completed public sector housing units should be available either for rent or for purchase. Purchased units should not be resold or rented out on the market for a fixed period of 5 years. The purchase price of these units should be set at a rate that covers the development cost and a notional land price. The notional land price should contain an element of subsidy so that the total purchase price is affordable for eligible households. For example, a monthly payment that is less than half the amount of the household’s eligibility income. This subsidized purchase price could be paid at the time of purchase through a 30-year bank mortgage loan after a 10% downpayment.

 

The above measures would create a market for public sector housing units that is absent now. They would remove the arbitrary distinction between rental and homeownership programs. They would provide an explicit subsidy on land values to residents who wish to be homeowners. The new proposed measures will restore the homeownership ladder that has vanished in the past decade.

 

Chinese Rural Migrants Struggles with Household Registration

 

Hong Kong’s housing program and its failures may offer some lessons for the Mainland as its own housing program develops. The massive influx of rural migrants into the cities from the early 1980s increased the proportion of renters, but 30 years after opening up, a rising proportion of these migrants have chosen to stay in the cities and the metropolitan areas and increasingly aspire to become permanent residents and preferably homeowners. There is little doubt that the migration of rural workers into the cities has greatly facilitated China’s economic development. Allowing this process to continue smoothly has to be one of the central features in China’s march towards modernity and long term prosperity and stability.

 

Low income households are poor precisely because they have poor access to good jobs and their children have poor access to good schooling. Another critical weakness is that low income households do not have access to capital markets that allow them to borrow at interest rates that are not exorbitant, which limits their opportunities for enterprise and for protecting their meager savings and making good on any investments.

 

In a growing urban metropolitan environment, the best opportunity for a low income household to accumulate wealth is to own property. As land values rise their savings are protected and grow. For unskilled and uneducated households, a propertied asset is the least demanding in terms of the knowledge needed to make reasonably good and safe investments. It is a source of savings that one can draw down through mortgages to meet urgent emergency health and other needs, and it provides for security in old age. The value of this savings is intimately tied to the prosperity of the place where the household lives and works; and so it provides the best mutually compatible set of incentives between social commitment to the community and individual self-interest.

 

In China, the rapid rate of economic growth means household and individual earnings are rising rapidly. Unfortunately the financial markets there are still not fully open and mature. The typical low and middle income earners have very limited opportunities to invest in reliable assets and protect their savings. The more rapid their earnings grow from year to year, the more rapidly the real value of their savings lag behind what is required to pay for the many crucial expenditures their households will encounter over their life cycle – marriage, childbirth, childrearing, sickness, retirement and old age.

 

Coastal Families Keen on Property

 

In a recent public lecture by Yale University Professor Deborah Davis at the University of Hong Kong on marriage behavior in cosmopolitan China, she found that young couples in major coastal cities are even keener than those in Hong Kong to own domestic property before marriage. Parents of both the prospective groom and bride would contribute their life savings to help the young couple become homeowners ahead of marriage. Clearly in China home ownership is perceived to be a vital first step before one could proceed safely and securely to the next stage of the household’s lifecycle.

 

As more rural migrants settle permanently in cities, the more rapidly the traditional family and village support structure will fade away. A new community and socio-economic support structure has to be developed for stable and sustained progress. Home ownership and housing markets could provide the essential core infrastructure to meet such social needs.

 

Singapore’s public sector housing program has provided a model for achieving such ends by allowing for the establishment of an active market in public sector housing for rental and for purchase and sale. But Hong Kong’s program has succeeded only in providing affordable shelter. It has failed to provide an effective vehicle for low income households to protect their savings and to share in the rising prosperity of a growing urban community. Without being able to own property, many low income households also find it difficult to support the many critical decisions they have to face over their household’s life cycle.

 

I believe the inability of low and middle income households to share in the rapidly rising prosperity of the community is behind the deep animosity against property hegemony in Hong Kong today. It is a misplaced animosity because the real failure is a failure in the design of the city’s public sector housing policy.

 

It is entirely likely that such animosity could also emerge in Mainland urban centers if issues of home ownership and the functioning of markets for public sector housing are not adequately addressed by the authorities in the proposed “economic housing” policy initiative of the 12th Five Year Plan.

 

References

 

Hernando de Soto, The Other Path: The Economic Answer to Terrorism, Basic Books, New York, 1989

 

Alex Josey, Lee Kuan Yew: The Crucial Years, Times Book International, 1968

 

T J S George, Lee Kuan Yew’s Singapore, Andre Deutsch, 1973

 

Alan Smart, Making Room: Squatter Clearance in Hong Kong, Hong Kong University Press, 1992.

 

Alan Smart, The Shek Kip Mei Myth: Squatters, Fires and Colonial Rule in Hong Kong, 1950-1963, Hong Kong University Press, 2006.

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