(This essay was published in South China Morning Post on 16 September 2015.)


Most people in Hong Kong think the public renter housing program provides access to subsidized shelter to households without means. They expect most of the inhabitants in these housing estates to be predominantly very low-income households.


This was not how the program was originally envisioned. In 1953 the resettlement policy began to admit squatters without means test to public housing, with the goal of clearing squatter lands. In the end over one million squatters were resettled without means testing.


In the 1970s, it was thought heavily subsidized public renter housing could be the first rung on the housing ladder for the poor, and provide support for them to move onto Homeownership Scheme units and private housing. When this failed to happen quickly enough, the government decided to raise the rents of well-off tenants from 1984 to encourage them to surrender their public housing units to the long queue of low-income households on the waiting list.


That transformation was achieved, but it cannot be attributed to government policy. Rather, it was due to the prosperity that resulted from globalization and the opening of China in the last quarter of the 20th century.


Unfortunately, this prosperity has not been shared equally. Impoverished inhabitants have reappeared in the city. The public renter-housing sector today is a concentration of poor elderly retired households and low-income single parent households.


Between 1976 and 2011, the proportion of public housing renter households from the lowest income quartile increased from an estimated 24.5% in 1976 to 48.4% in 2011, and the proportion below the median household income rose from 53.3% to 80.0% (see Figure 1).


At the same time, among households with heads aged 20-65 the percentage living in public renter housing declined from 36.3% in 1976 to 27.4% in 2011, while among heads aged above 65 the percentage rose from 30.6% in 1976 to 48.6% in 2011.

Given that demographic, it seems obvious that old age support should focus on selling our public housing estates to sitting tenants at an affordable price. In particular, this would allow the elderly to immediately and cheaply acquire an asset to provide old age support. It would go a long way to addressing the problems of elderly poverty in Hong Kong.


At present, elderly homeowners can mortgage their homes in exchange for an annuity to provide a constant stream of monthly income support for the rest of their lives. Upon passing away the property is inherited by their designated heirs, who can either take ownership and assume repayments on the outstanding mortgage loan, or receive the net value of the property after the loan is repaid in full.


Using land to finance old age retirement and to benefit the next generation has been a tradition in many civilizations long before the modern world made governments the preferred provider of those in need.


Privatizing the public renter housing estates would create a very large client pool of elderly homeowners willing to take advantage of mortgage backed annuity schemes. This would create better opportunities for diversifying risks associated with the uncertainty of life expectancy. A bigger market could also lead to better terms for all participants.


In principle, recurrent government funding would not be required, as it would be financed by land that currently has no market value because public renter housing units are non-traded assets. The value of the public renter housing stock, according to my estimate, would be in the magnitude of $2.5 trillion if it were privatized. Selling public renter housing units to sitting tenants would restore the market value of a non-traded asset that could provide old age support for the elderly.


This is not the only way in which land as wealth could be used to benefit those in need. There are the poor who are not elderly. The money the government saves on public housing expenditures could be transferred to other needs. Society as a whole would benefit if only we could unlock the value of public housing wealth.

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