(This essay was published in South China Morning Post on 22 October 2014.)
The youth protest movement that started on 26 September is demanding greater political freedom, but there is also an obvious socioeconomic cause behind this action: the divergence in fortunes between Hong Kong’s wealthy and the general public.
Hong Kong today is more prosperous than a generation ago. Landlords and homeowners have benefited, but many middle-class residents feel squeezed. Property prices are at a record high, up by a third from a previous peak in 1997.
The percentage of households owning private homes has increased by a mere 0.6% since 1991, to 35.9% today, while the down payment on a 400 square foot apartment has increased 15 times to the equivalent of 81 months of median household income. Society has inevitably become divided and the middle class no longer feels secure about its economic future.
People also see that most of the things they spend their earnings on (housing, public utilities, groceries, transportation, and the like) appear to be supplied by a dozen or so corporations, many related to property development.
Young people have readily embraced the radical view that tycoons dominate the economy and property developers are hegemonic. They trace these injustices ultimately to Hong Kong’s political arrangements, with Beijing as the master behind the curtains.
But this is not the primary reason why society is divided into “haves” and “have-nots”. True, the political arrangements have failed miserably to tackle society’s growing divisions. But there are other factors behind our high property prices.
First, economic globalization during 1980-2008 created rapid economic growth and accumulation of wealth worldwide. Property in Hong Kong was highly valued because the city is a prime international economic and financial center.
Second, since land in prime locations is scarce, redevelopment became a main means of supplying new properties. This process has been hampered by regulatory uncertainties and delays, which have helped to push up property prices.
Third, China’s opening and economic reforms, while part of the process of economic globalization, have been an independent factor because of their enormity, rapidity, and proximity to Hong Kong. They have led to structural economic transformation and rising prosperity in Hong Kong, which has escalated prices.
Fourth, the linked exchange rate regime tied Hong Kong’s currency to the US dollar. Low US interest rates during most of the past three decades fuelled property price increases here because international capital flowed into the city.
All these factors took place well before 1997, so the post-1997 political arrangements cannot be the cause of high property prices. The radical narrative is fundamentally wrong. The tycoon dominated economy is also a product of the same circumstances that have helped the wealthy to acquire more lines of businesses.
Nevertheless, a young person starting life today faces a huge uphill battle to save enough for the down payment on a home without the support of a well-off parent.
Homeownership is an asset that can help to finance children’s education, a small business, and retirement, and it is closely connected with upward social mobility. Without more homeownership, Hong Kong will be increasingly saddled with problems of rising intergenerational inequality.
Unfortunately, today’s very high property prices will not go away. It is impossible to bridge the divide between those who complain about high prices and those who do not want property prices to fall, without hurting Hong Kong’s economy. Instead, the correct approach is to turn the “have-nots” into “haves.”
Increasing supply alone will not be fast enough. There is a better way to deliver a bigger impact in one strike and at almost no cost to society: sell the existing stock of public housing to sitting tenants. The prices must be well below market levels and tenants must be allowed to transfer the unit on the free market and keep any capital gains from the sale.
This aim can be achieved by reviving a modified Tenants Purchase Scheme, lowering the unpaid land premiums for Homeownership Scheme units, and combining the existing public rental housing and Homeownership Scheme into a single program with options to rent, purchase, or rent now-purchase later.
Hong Kong is a capitalist society, but when capital is so unequally distributed it becomes a political problem. The voices on the streets come from a generation that has grown up amidst the rising gap in the ownership of capital. Only a bold housing policy initiative can help us break out of our political rut. This requires the courage and mandate of a popularly elected Chief Executive. If the housing problem is not resolved, every generation in future will continue to believe our political arrangements are at fault.