Page 8 - LanHse_Part1_Subsidized_eng

In 1976–96, the annual underlying costs incurred by low-efficiency ac-
counted for 0.46% to 1.03% of GDP. The waste of PRH should not be under-
estimated as the losses in dollar terms ranged from $650 million in 1976
to $6.95 billion in 1996. Although no relevant estimates for recent years are
available, given the spiraling property prices in the intervening years, the
underlying costs must have gone up.

At $118 per month in 1981 and $351 per month in 1991, the PRH tenants’
gains in housing consumption increased twofold but paled in comparison
with the respective amounts of subsidy at $559 and $1,696 by the HA over
the ten-year period. The ratio of gains in housing consumption to benefits
was 0.34 and 0.29 in 1981 and 1991 respectively. As indicated by the above
two figures, although subsidy by the HA increased during the above peri-
od, the rigid PRH policy has hampered tenants’ freedom to choose the size
of their flats. If, instead of being assigned a PRH flat, the tenants had been
given cash allowances, they would have opted for a bigger flat. Given the
extremely low rent, the tenants are willing to endure living in smaller flats.
Since the size of the flat is often less than ideal for tenants, the PRH subsi-
dy is not properly utilized. In 1991, the underutilization effect became more
evident as the ratio of gains in housing consumption to benefits dropped.

In assessing the efficiency of the PRH scheme, it is important to note
that well-off tenants tend to regard their flats as being too small. Their
actual housing consumption for their PRH is lower than that for the kind
of flats they can afford (since the size of their flats is perceived to be less
than ideal).

The root cause of low efficiency of public hous-
ing lies in the fact that PRH units have been
prevented from being made available for rent-
al or sale on the market, making it impossible
for the units to be allocated more efficiently by
the free market. Although many PRH tenants
regard their units too small, they are unable
to rent them out to private property tenants
who are at the mercy of rent hikes, and move
out to larger private properties themselves.

Free trading of PRH units may not be in the HA’s playbook, but if the
limitations persist, there will never be a proper match between tenants
and PRH units and may even create a black market, albeit a small one, for
these flats. Without a free market for renting and buying PRH units, ten-
ants will never be able to trade up to larger flats and thus become stuck
with the flats that are way too small for them.

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