(This essay was published in the South China Morning Post on 3 September 2014)
The value of Hong Kong’s housing capital last year was estimated at HK$6.8 trillion, or 320 per cent of gross domestic product. This is the net value of private residential housing at market prices, based on gross market value minus the value of outstanding mortgage loans. Total loans were a modest HK$900 billion – a mere 11.8 per cent of the gross market value.
French economist Thomas Piketty, in his book Capital in the Twenty-First Century, obtained similar figures internationally. He estimated housing capital to be worth 371 per cent of GDP for France, 300 per cent for Britain, 236 per cent for Germany, 208 per cent for Canada, and 182 per cent for the United States in 2010.
In Hong Kong, private residential housing only accommodates about half the population. The other half is in government-provided public rental housing and subsidised ownership homes, mainly tenant purchase scheme and homeownership scheme flats.
The market value of government-provided housing is very substantial, but because there are extremely severe restrictions limiting their use either as rental property or as assets for sale on the open market, their values are highly discounted. They simply provide shelter for the original occupants. As such, they are marginal to the market economy and measured GDP.
Privatisation of public rental units and deregulation of sale restrictions for ownership units, on the other hand, would substantially enhance the market value of government housing. What would be their market value if such steps were taken?
Based on the open market transaction prices of HOS and TPS flats, the gross market value of public rental housing units is estimated at HK$2.45 trillion, TPS homes at HK$410 billion, and HOS flats at HK$1.56 trillion. The total value of government subsidised housing is therefore HK$4.42 trillion, or 208 per cent of GDP.
What will be the economic gain to society from the privatising of public rental housing and waiving or substantially lowering of unpaid land premiums on all government-subsidised housing units? The value of private and public housing stock would easily amount to HK$11.24 trillion, or 528 per cent of GDP.
To put this percentage into perspective, consider Piketty’s estimates of the value of all forms of capital (and not just housing capital) as a percentage of GDP. He found this to be 617 per cent in France, 543 per cent in Britain, 418 per cent in Germany, 417 per cent in Canada, and 456 per cent in the US.
Hong Kong could be a very capital-rich city if only government housing units were privatised and deregulated, which would put an additional HK$3.36 trillion housing value in the market.
First, half the population would be happier because the gap between the rich and the poor would be sharply reduced in one fell swoop.
Second, the pressure on government to finance rising health-care costs, old-age social welfare payments, education spending, and even housing investment would be indirectly alleviated, as many under-utilised public housing units would become unlocked and return to market circulation.
Third, new economic activity at the grass-roots level could be spawned. Mortgaging parents’ homes is often a key way to raise capital among those without credit rating.
Fourth, mortgaging parents’ homes would also provide an important source of upward intergenerational mobility, both in providing human capital investments to children and making down payments for their home purchases.
Fifth, these benefits would come at no one’s expense. The government would not even need to raise taxes.
Five reasons, and more, for freeing up our public housing sector and allowing this capital injection into the economy.
