Generation 40s – 四十世代

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Carrie Lam’s focus on affordable housing in Hong Kong will finally help the squeezed ‘sandwich’ class

CommentInsight & Opinion
2017-09-22
Ken Chu welcomes the chief executive’s initiatives on housing, especially for young families, as they will benefit the often-neglected ‘sandwich class’ and reinstate their faith in the city’s future

It was during her election campaign that Chief Executive Carrie Lam Cheng Yuet-ngor first floated the idea of launching affordable homes for families struggling to buy flats at market rates.

Recently, she shared the basic concepts of her Starter Homes Scheme, which aims to enable these families to purchase a flat at prices lower than market rates.

The scheme will be targeted at permanent residents of Hong Kong. To qualify, they must be first-time homebuyers. According to Lam, the primary targets are young families who would be able to purchase a private flat at an affordable price.

In addition, according to reports, restrictions will be ­imposed on these homeowners if they want to resell the subsidised units, to prevent them from making huge profits at the expense of others in society.

At a housing forum earlier this month, Lam further described the targeted young families as those who are not only ineligible to apply for public rental housing or the purchase of Home Ownership Scheme (HOS) flats, but who are also unable to afford private housing despite their “decent” income. Let’s call this group the “sandwich class”, if you will.

Lam has also said the government is likely to consider a public-private partnership format to launch the scheme. Reports suggest the government will consider allowing private property developers to develop their land ­reserves at a lower land premium, in exchange for setting set aside a number of flats for the Starter Homes Scheme.

Some, however, argue that the plan is unfair to other classes in society, because those who will benefit already hold well-paid jobs and are within the top 10 to 15 per cent of income groups in the city.

I disagree. I trust that the chief executive has not singled out this group to the ­exclusion of others in society. For example, Lam has already pledged to increase the number of units for the so-called “green form subsidised home ownership pilot scheme” – to encourage public housing tenants to buy subsidised flats at a discount to the market price and so free up public rental housing units for those in need.

The government also recently announced plans to work with NGOs to launch legalised subdivided flats – under the so-called “social housing pilot scheme” – for those currently on the public housing waiting list.

Further, Lam has not lost sight of the acute shortage of land, which has sent private home prices skyrocketing beyond the reach of ordinary residents, while slowing down the building of more public housing flats for low-income families.

Given this scenario, Lam has formed a task force for exploring all options to increase land supply and launch a territory-wide debate, in an attempt to reach a consensus on the best approach to tackle the problem.

Besides, she has repeatedly emphasised that land earmarked for public housing will not be used for the starter home plan. Indeed, a public-private partnership approach implies the scheme will not compete for public land, as only private land will be enlisted.

It must be noted that the well-being of the so-called “sandwich” or middle class in Hong Kong has been neglected for too long. They deserve help, as much as the grass roots do.

History shows that the existence of a strong and law-abiding middle class is a stabilising force in society. It is the driving force behind its growth and prosperity. Sadly, our “sandwich” class has ­suffered the effects of economic downturns over the years, without enjoying much in the way of social ­welfare or benefits.

Members of our middle class, despite holding a decent job, find it almost impossible to afford a flat these days in Hong Kong’s exorbitantly expensive housing market. A survey by the international real estate consulting firm Demographia early this year revealed that the average price of a private home in Hong Kong was 18 times the median annual household income.

In other words, only if someone were to stop all spending on food, drinks and holidays for 18 straight years could they hope to buy a private home in costly Hong Kong.

At the very least, offering a helping hand to our young families as they chase their home dreams is one way to ease their frustration, as well as “reignite” their hopes for the future of the city.

Certainly, the government must consider the feasibility of every public policy initiative as, very often, failure to take heed of the technical details will ultimately diminish the effectiveness of any such initiative.

There are a number of technical matters to tackle in the case of starter homes, including at which price they will be sold, what the upper income ceiling will be for applicants, whether there will be a minimum holding period, and what sort of restrictions will be imposed to prevent people from profiting at the ­expense of taxpayers when they sell these homes.

However, I am confident that Lam’s administration has the capability and wisdom to roll out an ­effective starter home scheme for our young middle class who will ­become the pillars of society in the future.

Dr Ken Chu is group chairman and CEO of the Mission Hills Group and a National Committee member of the Chinese People’s Political Consultative Conference


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Hong Kong’s housing crisis can’t be solved by democratic consensus

South China Morning Post
Comment›Insight & Opinion
2017-09-19

Lau Ping Cheung

Lau Ping Cheung says public objection alone is not a good reason to reject reclamation and other contentious ideas if they have merit, while private developers must also play their part to ease the land shortage

Hong Kong needs land for housing. Given that 76 per cent of the city’s 1,106 sq km territory is still undeveloped, we do not lack land for development per se. What we do lack is a consensus on where the land should come from.

Based on the government’s “Hong Kong 2030 Plus” development strategy, the city needs 4,800 hectares of land to meet its housing and development needs, but can find only 3,600 hectares, leaving a shortfall of 1,200 hectares.

At its first meeting recently, the 30-member task force set up by Chief Executive Carrie Lam Cheng Yuet-ngor to find developable land listed 12 viable options for study. These include developing the land on the fringes of protected country parks; reclamation outside Victoria Harbour, particularly the sea off Lantau Island; speeding up the development of comprehensive development areas; and the relocation of the Kwai Tsing Container Terminals, or building housing above the terminals. Public consultations will follow once the panel has completed its study.

It’s obvious that reclamation outside Victoria Harbour and the development of some peripheral areas of country parks – the two options the chief executive has put weight on – will be highly contentious.
But is a contentious proposal necessarily inappropriate? Requiring a consensus by way of the Western democratic system often disregards sound judgment; “majority rule” may mean “majority ruins”. A good example would be the election of US President Donald Trump, an apparent racist, misogynist, xenophobe and climate change denier who won the presidency in a democratic election. Likewise Brexit, with its jaw-dropping verdict in favour of a UK exit from the European Union.

It’s safe to say that any result by “majority rule” is utterly subjective. For instance, what if we were to hold a public referendum on the abolition of the tax system? My guess is that the majority would vote in favour of it, never mind the consequent collapse of the whole socio-economic system.

Among the 12 options raised by the task force, the parcels of land zoned as comprehensive development areas can potentially yield a substantial amount of land for housing.

In a designated comprehensive development area, individual sites cannot be developed or redeveloped without approval for a master plan for the whole area. When multiple owners are involved in one area, it is extremely difficult, if not impossible, to get plans moving, let alone amass the financing and expertise needed for development.

Some estimate there could be more than 100 comprehensive development areas idling all over Hong Kong, with some 600 hectares of land being frozen, many for years. For example, the 4.76-hectare site adjacent to Man Yiu Street in Central, part of the Central harbourfront development, has been idling for 17 years. If developed, it could provide 1.7 million sq ft of grade A office space. Ironically, the Man Yiu Street comprehensive development area involves just a single owner – the Hong Kong government.

Beyond the task force’s 12 options, the land banks of private owners should not be overlooked. I have argued in the past that it is important to expedite land rezoning and lease modification, to release more privately owned, non-residential land – such as deserted farmland and fish farms – for redevelopment.

In 2010, the land released as a result of such rezoning exercise totalled about 6.7 million sq ft of floor space, which translated into some 13,000 residential units of 500 sq ft each. A year later, such rezoning made available 5.4 million sq ft of floor space, or about 11,000 residential units.

In subsequent years, however, the numbers have dwindled to a few hundred, thanks mainly to government bureaucracy. Why let this private land sit there idle, when it can be released into the market to alleviate our housing shortage?

The land premium assessment process is contributing to the bureaucratic hold-up and must be simplified. Where a land lease modification – say, from agricultural use to residential or commercial use – confers an increase in land value, the government requires that the land owner or developer pay a premium to the Lands Department. The negotiation between the Lands Department and the land owner, however, is strictly private and non-transparent, so that other land owners are clueless about the amount of premium paid. Without a benchmark, such negotiations are often prolonged and uncertain.

With more than 1,000 hectares of land currently in the hands of private developers, as has been widely reported [8], it is imperative that the land premium assessment system is improved. One possible way to expedite negotiations is to fix the land premiums for different districts for a period of time, to be reviewed later to accommodate market changes.

One idea outside the official list of 12 also deserves mention. Many people support the development of brownfield sites, but they seem to have forgotten that most brownfield sites are privately owned and distributed all over the city. Brownfield sites are deserted land used mostly for open storage, container yards, depots, rural industries and recycling yards. Before they can be put to residential use, there needs to be a process of land resumption and clearance, compensation, and relocation arrangements.

The government is not shying away from this option. The Planning Department, in its proposed Hung Shui Kiu new development area project, is looking to earmark 24 hectares of land for port backup, storage and workshops, including multistoried buildings to relocate and accommodate some of the affected brownfield operations. But any resumption and relocation will inevitably be difficult, slow and sometimes confrontational.

And then there is reclamation. What seems to be inevitable to some is a big no-no to others. With just 6 per cent of its land derived from reclamation, Hong Kong’s figure is dwarfed in comparison with neighbouring Macau, where a whopping 60 per cent of land came from reclamation, or with Singapore or the Netherlands, each of which has derived some 20 per cent of their land from reclamation.

Remarkably, about 70 per cent of Hong Kong’s commercial activities take place on reclaimed land, and, taking into account that the Hong Kong International Airport sits on reclaimed land, Hong Kong’s status as a commercial hub and travel destination has land reclamation to thank. Additionally, Hong Kong’s nine new towns, home to 3.5 million people, were largely created on reclaimed land and countryside. These are remarkable statistics. Yet, in their fervent opposition to land reclamation, some people have very conveniently shoved them under the table.

Tackling the land shortage is not solely the responsibility of the government. We also need private owners to release their land, and for the community as a whole to demonstrate sensible judgment and prioritise society’s well-being. And, adopting a pragmatic, scientific approach is just as important as forging a public consensus. After all, a louder and seemingly democratic voice does not necessarily make the majority vote a sensible one, or one with the people’s best interests in mind.

Lau Ping Cheung is a member of the Economic Development Commission and convenor of its working group on professional services


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Hong Kong should make the best of being a low-fertility society

CommentInsight & Opinion
2017-07-24
Paul Yip says high costs and changing social norms will keep Hong Kong stuck in a low fertility trap. Instead of focusing on trying to raise fertility rates, the city should also improve health, skills and education to meet the challenge

Is Hong Kong doomed to be a society of low birth rates and eventually declining population? Austrian demographer Wolfgang Lutz has put forward the hypothesis of a “low fertility trap” that illustrates the challenges we face. When fertility rates fall below a certain threshold, he says, it could be trapped at a level of around 1.2 children per woman, far below the replacement level of 2.1. This is not just due to the demographic transition of fewer marriages, but also the self-reinforcing changes in social attitudes towards family formation.

It is a trap because of the involuntary nature of such a possibly irreversible demographic regime change. As more people choose to have fewer children, young people growing up will begin to accept small family size as the norm. This in turn affects their future aspirations to have children.

In Hong Kong, surveys show that the ideal family size is 1.6 children (that is, the number of children families want to have), while the total fertility rate is around 1.2 (the children they actually have). If the city’s youth aspire to have even fewer children, ideal family size will fall further, and so will the fertility rate.

All high-income Asian economies, including South Korea, Japan, Singapore and Taiwan, have a total fertility rate of about 1.2, lower than the average of 1.5 in the West, even though their governments have spent considerable resources in ­an attempt to raise fertility rates.

For example, the Korean government provides universal free childcare services to parents, and spent more than 61 trillion won (HK$424 billion) from 2011-2015, with little impact on improving women’s labour participation rate and fertility rate. It is going to spend another 108.4 trillion won from 2016-2020. The universal childcare service welcomes these initiatives as mitigating the pressure of raising families, but there is still little impact in raising fertility rates.

Taiwan has provided much support to families with more children, in the hope of reversing the fertility decline. Likewise, the Singaporean government has gone all out to promote marriage and fertility by offering affordable housing loans and other incentives.

Low fertility rates in these countries are not just due to financial considerations but some very practical issues, such as long working hours and gender inequality, such as the unequal burden on women of childrearing and housework. The unstable employment situation, expensive housing and high educational expenses are real barriers to bigger families.

In Singapore and South Korea, population policy committees are housed in the prime minister’s and president’s office, respectively, to reflect strong government commitment. Singapore treats its population policy as a priority in the national policy agenda. With a population about 2 million short of Hong Kong’s, and 30 per cent non-permanent residents, it is a matter of survival for Singapore to maintain a sizeable, quality population.

Compared with other advanced Asian economies – Japan, South Korea, Singapore and Taiwan – Hong Kong has the lowest average ideal family size, of 1.6 children.

In Japan and Korea, the ideal is 2.4 and 2.2 children, respectively. Thus, even amid ultra-low fertility, the two-child norm is still very strong these countries, but ­appears to be eroding in Hong Kong.

In the latest survey by the Family Planning Association, about 28.4 per cent of respondents reported that their ideal number of children was zero, reflecting that nowadays in Hong Kong, a certain proportion of couples voluntarily choose to be child-free and live the DINK (double income, no kids) lifestyle. About 40.4 per cent reported that their ideal parity was one, while only 29.4 per cent reported that their ideal parity was two.

So aspiration for family formation among our young people is not high, and the fertility intention is even lower. With expensive housing and job instability, Hong Kong has all the elements to remain in this low fertility trap for a long time.

On the other hand, we enjoy one of the longest life expectancies in the world. With the workforce ­expected to shrink from 2018, we do need to plan ahead to avert crisis.

Improving productivity and ­relying less on labour-intensive work should be the top priority. The relatively low labour costs have not provided the incentive for investing in technology to ­improve the working conditions for the three “D” work categories, namely, difficult, dirty and dangerous work. Further, replacement migration is not only an option but a real necessity, to maintain the quality of service and timeliness of completion of work.

Given the challenges, Hong Kong’s fertility rate of about 1.2 is unlikely to see much ­improvement anytime soon. The average duration between marriage and the first birth is also getting longer, to about three years now. Apparently, the gap between the ideal and reality is also growing larger.

There are too many barriers for women in Hong Kong to achieve the ideal family size, not least the financial burden of high housing prices and costs of a quality education.

If we can’t see an end to the low fertility trap, perhaps we need to ­adjust our mindset for living with a low-fertility society, and ­improve on education, skills and health to offset the population size deficit.

By making Hong Kong an ­attractive place, we still can attract the right people with the right skills to maintain the city’s sustainable development.

Paul Yip is chair professor in the Department of Social Work and Social Administration at the University of Hong Kong


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Why Hong Kong’s property market won’t crash – this time

CommentInsight & Opinion
2017-06-29
Andy Xie says although Hong Kong’s fragile economy remains unhealthily dependent on the property sector, the asset bubble today is unlikely to burst, as happened after the handover. Stagnation is the bigger worry

 

Property is at the centre of everything in Hong Kong today, much like it was 20 years ago on the eve of the handover. Soon after the handover, prices collapsed, hitting rock bottom in the spring of 2003. They have since clawed their way back up, and some. With the 20th anniversary of the handover now upon us, will history repeat itself?

The similarities between now and then are only skin deep. In 1997, Hongkongers were extremely optimistic about the future. Foreigners agreed. The mantra was that China was set for explosive growth, Hong Kong, being China’s window, would be the conduit for all the money flowing to the mainland, and Hong Kong property would rise and rise on that money. Most bubbles occur because people got carried away. Hong Kong in 1997 fell into that category.

When the Thai baht collapsed, it exposed the problems in the East Asian boom. When foreign money pulled out, the Hong Kong property market collapsed. It showed that hot money was the driver for Hong Kong’s property market, not growth.

The collapse of the bubble exposed a greater challenge facing Hong Kong’s economy. The city prospered on China being closed. Arbitraging on China’s inefficiencies was the foundation of Hong Kong’s prosperity – being in Hong Kong offered a seat on the gravy train. The Hong Kong government taxed the privilege through high property prices to fund itself.

But, after China joined the World Trade Organisation, the gravy train was derailed.

Hong Kong has never faced up to this competitive challenge. For years, mainland tourism kept the retail sector afloat. But, is the future for Hong Kong youth to be shopkeepers?

Meanwhile, investment immigration juiced up the property market. It turned a whole generation of youth into property agents harassing pedestrians in the posh shopping districts. The latest financial boom is very much driven by grey income fleeing China. After 20 years, Hong Kong’s economy hasn’t built a lasting foundation.

This economic fragility is reflected in the popular pessimism today, in contrast to the widespread optimism two decades ago. Why, then, is there a property bubble now?

Three forces have been at work.

First, after the property collapse in the late 1990s, the city’s ruling class shrank supply to prop up prices. The initial plan to launch 85,000 public flats, a key component of Tung Chee-hwa’s housing programme, was abolished. Minimum prices were assigned to subsequent land auctions, cutting supply in a low-price environment. Even the land marked for public housing was later sold to private developers. When incomes are not rising, cutting supply can increase prices.

Second, after the 2008 property collapse in the US, the Fed cut interest rates to zero and kept them there for a long time. With an exchange rate pegged to the US dollar, Hong Kong has the same interest rate, and debt demand increased accordingly. Household debt has increased to 70 per cent of gross domestic product from the previous peak of 50 per cent in 1997. The debt, of course, has piled into the property market.

Lastly, China saw a massive increase in corruption in the decade after 2002. The grey income flooded into Hong Kong, much of it enabling cash purchases of properties. The flood of mainland money, in addition to juicing up property demand, has kept Hong Kong’s interest rates even lower than America’s.

However, all three forces are now reversing. Housing supply is likely to increase substantially in the coming years. Though still low relative to the population, the increase will have a big impact, because the prices are so high relative to income. US interest rates are going up. And, China’s crackdown on corruption will last for years to come.

Hong Kong’s property market is likely to behave like Japan’s in the past two decades, not like it did itself two decades ago. The US economy is not as strong today as it was then, and US interest rates may peak at 3 per cent this time, not like the 6 per cent then. Besides, China is much bigger now and will surely intervene if the market collapses like in 1998.

After its property bubble burst in 1992, Japan’s banks didn’t foreclose on their delinquent borrowers. That prevented the snowball effect in a bubble collapse. However, while such a response would save the economy the pain of a 1998-style collapse, the slow adjustment would trap the economy in stagnation, because capital could not be relocated into new productive areas from the bubble economy.

Hong Kong has been trapped in a property curse, which could last another two decades, diverting its attention from the main challenge of meeting the competition from millions of graduates from across the border joining the workforce each year.

Two decades ago, for a similar job, a Hong Kong salary was 20 times that on the mainland. Now it is three times. How long can Hong Kong justify the differential? It is already less competitive in education and infrastructure than tier-one mainland cities. The gap will only widen. Unless big changes are made, salaries in Hong Kong will not rise and may even decline.

Andy Xie is an independent economist