Page 7 - LanHse_Part1_Subsidized_eng

As a hypothetical example, to a relatively well-off family living in a PRH
flat in Ap Lei Chau, the daily commute to Kwun Tong and going to school
in Kowloon for the children are not only frustrating, but also a bit costly. But
the schools in Ap Lei Chau may not be good enough for the kids, and the
wife has quit her job in Tsim Sha Tsui because of the long commute. More-
over, the mother-in-law who lives in Ho Man Tin hardly comes over to take
care of the grandchildren. So the three generations of the family can only
get together once a month. Nevertheless, since the rent is only $2,000 per
month, the household head has decided the family has no choice but to
stay put.
However, if the family head rents out the PRH flat in Ap Lei Chau for
$13,000 per month, and gets an additional monthly income of $11,000, he
may be able to afford to rent a private property for $16,000 in Sham Shui
Po. With the money saved by reducing the commute cost, the wife can
find a job in Tsim Sha Tsui and use the earnings to make up for the $5,000
rent difference. With the wife’s income, the family can move into a private
property of a similar or even larger size. Daily traveling time for all family
members is reduced and the three generations of the family can get to-
gether more often. All this happiness does not come from a PRH flat but
can only be achieved with the help of the market.
In the above example, excluding operating costs, the HA’s subsidy for
the PRH household is $11,000 (= $13,000 – $2,000). To the family in question,
the advantages of moving to Sham Shui Po, paying an additional $5,000
per month, outweigh those of staying in Ap Lei Chau. In other words, the
advantages of moving to Sham Shui Po are worth more than $5,000. In
this hypothetical example, the efficiency of a PRH flat is actually below
46.2%. Over 53.8% of subsidy remains unrecognized by the tenants.
An estimation by Wai-Hin Yan (2000) of the utility gains of PRH tenants
in 1976–96 worked out the average household incomes, costs of subsidy
by the Government, the benefits enjoyed by the tenants, the efficiency
ratio (gains divided by subsidy), and the tenants’ average gains in housing
consumption (see Table 1).
It is found that the tenants’ gains are far less than the public subsidy.
With relative efficiency ratio at 1 (maximum efficiency), the PRH scheme’s
efficiency ratio in 1976–96 only ranges from 0.61 to 0.75. In other words, for
every $1 of subsidy by taxpayers, the average tenant can only enjoy $0.61
to $0.75 of gains. Owing to resource mismatch resulting from the fact that
most tenants are not satisfied with the PRH units they are assigned, $0.25
to $0.39 of subsidy goes to waste.

Table 1. Subsidy and benefit per household per month, and the efficiency
ratio of the PRH Program, 1976–96

1976 1981 1986 1991 1996
Average household income ($) $1,560 $3,374 $5,680 $10,072 $16,547

Subsidy granted per household ($) $399 $559 $1,167 $1,696 $2,971
Benefits received per household
per month ($) $243 $351 $873 $1,231 $2,090
Efficiency ratio 0.61 0.63 0.75 0.73 0.70

Estimated cost of inefficiency losses ($bn) $0.65 $1.04 $1.82 $3.21 $6.95
Estimated cost of inefficiency losses as a 1.03 0.60 0.57 0.46 0.56
percent of GDP
Gains in housing consumption per house – $118 – $351 –

Ratio of gains in housing consumption to
benefits received – 0.34 – 0.29 –

Source: Yan (2000)
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