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Monday, February 11, 2019, 10:54
Time to reintroduce rent control in housing market
By Sonny Lo
Monday, February 11, 2019, 10:54 By Sonny Lo

In the wake of unaffordable rents, Sonny Lo believes it is now time for the SAR government to reconsider rent controls as a temporary measure until more housing becomes available

A peculiar phenomenon of Hong Kong’s housing market is that there are now two types of cage homes: those rented by very poor people and those rented by middle-class yuppies. The cage homes accommodating the poor stood out by their dilapidated conditions located in traditionally poor urban areas. In contrast, the yuppies spend a sizeable amount of money to live in “luxury” cage homes of 150 square feet or smaller in convenient locations.

What is the problem with our market? Market defenders will argue that this situation is normal, reflecting the natural development of the housing market. Critics will argue that this is absolutely abnormal, raising the issue whether the Hong Kong government should reconsider the policy of rent control urgently.

I would contend that the current housing market is abnormal, because there is an absence of government policy regulating the two extreme ends of the housing market. Defenders of the market would say that I am wrong because market forces naturally allow the emergence and proliferation of units at these two extreme ends. Since the government of Hong Kong practices “positive non-interventionism”, it means that authorities would intervene in the housing market only if absolutely necessary. I would argue that citing the principle of “positive non-interventionism” is just an excuse for having no policy control over the two extreme ends of the housing market.

Rent control should be implemented by the government after it has completed a survey of all apartment units that contain cage homes. Landlords of these apartments must be taxed severely accordingly, including back property taxes

If the role of any government is to step into the market whenever there is any abnormality, then the question is why the government so far has not reconsidered rent control seriously. The answer from the government is that it is accelerating the supply of land and flats, and therefore the phenomenon of having cage homes at the two extreme ends will fade away with the passage of time, with the supply of new land for housing to be created under the Lantau Tomorrow Vision.

But the immediate problem is the transition from now to the first batch of residential units expected under this bold initiative in 2032. Is it right to expect the poor to put up with their wretched living conditions for at least another 13 years and have the middle-class yuppies spending so much money in rent with no returns?

To ensure social stability, clearly rent control should be introduced now over these two extreme ends of the housing market until sufficient new housing units from the Lantau Tomorrow Vision could stabilize the market. Rent control on shops and residential units can be traced back to the 1920s and the 1940s when there was an influx of migrants from the mainland. Many property owners at that time, like the current situation, raised their property prices and rents. Rent control was implemented by the British Hong Kong government in 1973 to prohibit landlords from raising rents beyond 90 percent of the prevailing market rate for two years. The policy also forbade landlords from raising rents more than 30 percent when they were negotiating a new tenancy lease with tenants. Finally, landlords were required to extend rental leases with their existing tenants who were willing to pay the prevailing market rent. Rent control was abolished in 1998 after the Hong Kong property market was battered by the 1997 Asian financial crisis.

Rent control on cage homes for the poor and the needy must be applied now so that they can have their financial burden relieved as soon as possible. Although critics of rent control argue that the poor and the needy can apply to the government for public housing, but the problem is that the waiting time for public housing can take four to five years.

Rent control should be implemented by the government after it has completed a survey of all apartment units that contain cage homes. Landlords of these apartments must be taxed severely accordingly, including back property taxes. Many landlords have profited by turning their apartments into cage homes. Yet, the government has so far turned a blind eye to this blatant tax evasion, knowingly losing a large amount of property taxes that should have been levied on these landlords. If the aforementioned measures can be introduced, the poor and the needy would definitely have their livelihood problems alleviated somewhat in the short run.

As for the luxurious small homes for the middle-class yuppies, the government should impose strict measures on the land developers to discourage the construction of mini-sized apartment units, rightly described as “inhuman” in some quarters. The reason is that, without any control, the private housing market in Hong Kong is distorted by some land developers who profit in the name of the free market. Middle-class yuppies should be encouraged to rent or buy larger apartment units through the provision of more spacious apartment units targeting the middle-class people, making them suitable to raise families in.

It is high time that the government reconsider rent control as a stop-gap measure until substantially more flats flood the market. The current situation is abnormal and unsustainable. Our legislators should really consider how to reintroduce control measures to tighten all the loopholes which bred this strange phenomenon of having two types of cage homes in Hong Kong. 

The author is a senior academic and veteran current affairs commentator.

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