Hong Kong's next leader faces a public housing crisis. The city's real estate bubble, buoyed by low interest rates, limited supply and mainland money, is stoking unrest. Incoming Chief Executive Carrie Lam promises more affordable housing. It's better policy that's in short supply.
A typical apartment in the former British colony now costs 18 times the annual median salary, making it the least affordable housing market in the world by far, according to Demographia. Despite efforts to cool the market, home prices hit a record high for the sixth straight month in April, up nearly a fifth year on year. This has aggravated social inequality and added to political discontent, leading to massive protests that rocked the city in 2014.
Lam is right to focus on the city's massive public housing programme, which serves almost half of Hong Kong's 2.5 million households. Low-income families can apply for public rental housing while a Home Ownership Scheme (HOS) allows eligible middle income households to buy government apartments at a discount. The idea is that families can move up this "housing ladder" into private ownership.
But the system is overstretched. Our Hong Kong Foundation estimates under 100,000 new public housing units will be completed over the next five years, far short of the 140,000 target. As of March there were over 147,000 applicants waiting for rental housing. The average wait time has jumped to 4.6 years, up from less than two years a decade ago.
Bad policies have played a role too. HOS flats are sold at a discount of 30 to 40 percent of the market rate, so many families can now no longer afford them. And while these flats can be later re-sold, owners must first repay the value of the subsidy, called a "land premium," to the government. Bizarrely, land premiums are pegged to market prices, so they too have soared. This makes exiting public housing prohibitively expensive for many, trapping them on the bottom of the ladder.
Lam has made the usual pledges during her campaign, such as boosting supply. She's mentioned an additional home ownership scheme. But details are scarce. The risk is that her policies will have the same shaky foundations as her predecessors'.