Hong Kong: Call for Home Ownership Scheme is Uncalled for

Stephen Chung

Managing Director

Zeppelin Real Estate Analysis Limited

December 2009

There have been calls for reviving the Home Ownership Scheme (HOS) in view of rising residential prices especially in the pricier sector. A survey done by the Chinese University of Hong Kong seems to indicate a 75% support for the scheme, according to a recent news report in the South China Morning Post.

For the uninitiated, the home ownership scheme was created in the latter part of the last century by the government to help (lower) middle class households to become homeowners, largely via government-developed residential units which were priced lower than market.

Your humble author thinks this is not necessary. Apart from the question of whether a government has the responsibility to make homeowners out of its citizens (if so, how about making them car owners too?), there are a few more:

A)      “Homeownership is conducive to having a stable society” = this is probably the most often quoted statement in support of homeownership and it seems to go largely unchallenged, akin at times to being put on a pedestal for worship.

Your humble author begs to differ. Not that the statement harbors no substance, just that it may not be correct or applicable in all and any circumstances. To begin with, ‘stable society’ carries different meanings to different people.

If one is thinking of less protests and complaints, then probably more homeowners may actually lead to more. Why? Because one’s flexibility in relocation is reduced (versus renters) leading to higher inclination to participate in social causes when and if property values and rights are perceived to be threatened [NIMBY?]. If one is talking of higher interest in serving the neighborhood and society at large, then higher homeownership may be conducive toward achieving that.

Readers may wish to refer to a study [see the web-link below] on homeownership and social stability done by Harvard University. While it does support the notion that higher homeownership leads to more stable societies in terms of volunteering service and the like, it also indicates higher homeownership has little or no effect on personal health etc. Poor neighborhoods may also not benefit much from having more homeowners.  

http://www.jchs.harvard.edu/publications/homeownership/liho01-12.pdf

B)      “University graduates cannot afford a home” = is another popular statement generally used by people seeking to establish that home prices are way too high.

Well, home prices may indeed be pricey, expensive, way out of line, or simply too high but using the notion that (even) college grads cannot afford to buy is misleading. Again why? The notion seems to suggest that somehow college grads could afford to buy in the good old days BUT this was (and is still) not the case.

And your humble author has first hand experience: he has relatives who graduated from the University of Hong Kong in the late 1960s in the professional disciplines and all they could afford were tiny rental homes in the first several years after graduation. Eventually they would buy their first (small) homes but not before they managed to save enough ‘down’.  

C)     While technically home prices are on the high side, homes are still by and large affordable owing to the historically low mortgage rates = if one is to use the HK$4,300 / ft2 or so figure provided by Midland Realty over TV networks, and assuming an average floor size of 600ft2, then the total will amount to $2,580,000. Providing a 70% mortgage ceiling and using current rates, the household may need to dish out close to $10,000 per month in mortgage principal and interest payment.

The ‘burden’ is not overly light but neither too heavy for most home buying households.

D)     Compared to other countries and cities, Hong Kong home affordability fares not too badly = please refer to the following table:

The lower the ratio is (home price divided by the respective GDP per capita), the higher the home affordability will be. As such, most developed economies have higher affordability than Hong Kong. Yet, they also tend to have higher taxations than Hong Kong i.e. if disposable incomes were taken into account, then Hong Kong might have similar affordability. 

When it comes to emerging economies, Hong Kong offers much better affordability e.g. the Shanghai ratio is more than twice of that for Hong Kong, implying a heavier home-buying burden on Shanghai residents.

E)      HOS is a waste of precious land resources = a site designated for HOS means 1 less for public (rental) housing thus lengthening the time for public housing applicants (which your humble author supports as society needs to care for the needy) OR 1 less for private development thus depleting government revenues.  

The lingering question remains this: why do we need to help some of our residents, who are not too poor or at least not being the poorest in society, to become homeowners?

Food for thought: some say the percentage of households in Hong Kong who own their own homes is still low compared to say the USA, thus implying further room for homeownership expansion. Yet, there are many tenants in public housing estates who have been renting for decades and some of them now enjoy better household incomes than when they first moved in many years ago. Some even own properties in the Mainland and / or Hong Kong. Nonetheless, as long as they continue to pay rents, they could stay in their public housing units. While not being formal owners of such units with property rights [some public housing estates are now actually selling these units to willing occupants], their continued possession (versus formal ownership) of the units make them ‘de facto’ unit owners. Hence, when viewed in this way, the overall homeownership level in Hong Kong cannot be said to be overly low.  

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