(This essay was published in South China Morning Post on 2 July 2014) 

 

Hong Kong’s divorce rate in 2011 was 2.9 per 1000 people, among the top 10 highest in the world. The divorce rate has been increasing rapidly since the 1980s. It is significantly lower among homeowner families compared to tenants who rent housing. The differences have been rising and since 2000, it is on average around 50-60% higher among public and private housing tenants than among homeowners. Homeownership is a good proxy for household wealth. The rich are much less likely to divorce because there is more to lose, especially in Hong Kong where property prices are high.

 

When the divorce rate is rising, especially when the rise is disproportionately higher among poorer people, then the measurement of household income inequality will be distorted. There is a statistical explanation for this.

 

Suppose there are two households, one earning $40,000 (husband and wife each earn $20,000) and the other $20,000 (each earn $10,000). In this two-household society average household income is $30,000. If the lower-income family divorces then the average household income drops to $20,000 because there are now three households – a fall of 33% even though everyone’s individual income is unchanged. This explains why over time median household income is stagnant. And the household income gap between the rich and poor is rising faster than the gap in individual income.

 

Higher divorce rates among the poor and rising divorce rates together suggest that the income gap between the rich and poor could continue across generations, as the poor remain or fall further behind. Of particular concern is the growing number of women who are divorced because remarriage rates are much lower among women than men (nearly six times lower in 2011). Divorced women often have low incomes, raise children, and can become increasingly dependent on the state for support.

 

While divorce may be a sad but necessary solution for unhappy marital partners, there are many reasons why divorce rates have risen everywhere, but in Hong Kong two factors have exacerbated the incentive for couples to divorce especially among the poor.

 

Hong Kong’s public housing program provides a built-in incentive for unhappy couples to divorce. One divorced parent can remain in the public flat, while the other moves out to rent in the private sector – and the latter can apply for re-admission to public housing with preferential treatment if they have dependent children or remarry.

 

Rising divorce rates have exacerbated the demand for both public and private rental units. One spinoff has been the appearance of sub-divided housing in the private sector due to limited housing supply. It is notable that the number of divorced persons in private rental housing has risen even more rapidly than that in public rental housing.

 

The opportunity for low-income divorced individuals to remarry, especially men, has greatly improved with China’s opening. In Hong Kong today, there are 60,000 marriages and 20,000 divorces each year. Among marriages the number of remarriages is 23,000.  In the past two decades, the average number of marriages that are cross-border marriages is about 40%. The changes among low-income families have been enormous and largely for the worse.

 

Our current public rental-housing program is helping to reproduce poverty across generations against a background of sustained rising private property prices. It would seem obvious that a much better way for Hong Kong to provide subsidized housing is to shift to a scheme of rent with option to purchase, and remove the silly separation between homeownership and rental units. When families have a joint stake for staying together the incentive to divorce is lowered. In Singapore, there is one subsidized housing scheme and over 95% are homeowners. The divorce rate there is 1.5 per 1000 people.

 

Subsidized rental units here perversely reward divorce with improved living conditions (fewer people occupying small flats). They also lower upward social mobility as more children grow up in divorced households in the public housing estates. We must change our subsidized housing policies.

 

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