Budget plan can address long- and short-term needs
This article appeared originally in the CHINADAILY on 23 Feburary, 2021.
Authors: Ryan Ip, Head of Land and Housing Research at Our Hong Kong Foundation
As Financial Secretary Paul Chan prepares for the Budget on Wednesday, Hong Kong has been plagued by challenges for over a year. As a result of the perfect storm of the COVID-19 pandemic, the trade dispute between China and the United States, and the unprecedented social unrest, the city suffered on many fronts. The economy has regressed into negative growth, and the unemployment rate reached a 17-year high at 7 percent in the three months ending January.
The Budget provides an important opportunity to support the city’s recovery by channeling the right resources to the right places. We believe measures should be taken not just to improve the housing supply, but also to stimulate the economy by long-term investments, and crucially, to provide jobs. As such, we have put forward three main recommendations for the Budget. Firstly, we believe it is time to speed up investments in transport infrastructure. Secondly, we are confident that launching the Tenants Purchase Scheme 2.0 (TPS 2.0) will bring multiple benefits, including billions of dollars for the public coffers at a challenging time for public finance. Thirdly, the government should immediately streamline development procedures for public housing projects.
In relation to transport infrastructure, the government should expedite the progress of all seven railway lines in the Railway Development Strategy 2014, and prioritize three main road proposals, namely Road P1, Route 11 and the Tuen Mun Western Bypass. The P1 road will link up much of northern Lantau Island. Route 11 will connect North Lantau and Yuen Long, while the Tuen Mun Western Bypass will link up Tuen Mun with the Chek Lap Kok Link and the Kong Sham Western Highway.
Transport infrastructure is an ideal option as it could help build up the transport capacity for new development areas for future housing needs
Investing in public infrastructure is an effective way to help grassroot employment, as well as a powerful vehicle to boost economic growth. The construction industry has been seriously affected by the pandemic. The sector’s unemployment surged to the current peak of 11 percent, compared to a pre-COVID-19 level of 5 percent. This recommendation is in line with the economic policy of pursuing an expansionary fiscal approach for countercyclical measures in times of economic downturn. Transport infrastructure is an ideal option as it could help build up the transport capacity for new development areas for future housing needs. We also believe there is a strong need to review the methodology of the existing cost-benefit analysis in assessing these projects. The analysis should consider indirect economic and social benefits like expanded economic activities, higher development potential and additional land sale revenue when calculating the internal rate of return.
We have long supported the launch of an improved version of the TPS, and this is possibly more important than ever as a result of the multibillion-dollar Budget deficit. This recommendation could help instill wealth in grassroot levels as well as replenish the Treasury when it really needs the money. According to calculations from Professor Richard Wong, provost and deputy vice-chancellor of the University of Hong Kong, the privatization of existing Public Rental Housing units can unlock as much as HK$4.4 trillion (US$567 billion) of land value, equivalent to 155 percent of Hong Kong’s GDP in 2018. The right time for a full launch of TPS 2.0 has arrived, especially as the government has secured the land supply for its public housing supply for the next decade.
The measure is also widely supported by the public. We commissioned Lingnan University to conduct a survey on attitudes toward a relaunch of the TPS, which successfully interviewed 1,552 Hong Kong residents aged 18 or above between Oct 28 and Nov 2. The survey found the consensus opinion generally supports a relaunch. The survey revealed 74 percent of respondents agreed to a relaunch, allowing public housing tenants to buy their own units at 20-50 percent of the market price. Almost 90 percent of public housing tenants agreed to relaunch the TPS, while nearly 70 percent of private housing occupants agreed to the proposal. The sour-grapes sentiment from private housing occupants apparently does not exit.
We also urge the government to streamline the development procedures for public housing projects, and it should hold project disclosure to a higher standard and introduce market competition for public housing works. The public housing completion targets were habitually missed since the Long Term Housing Strategy was set out in 2014. Cumulatively, the shortfall in units over the past eight years is already equivalent to 13 Choi Hung Estates. We believe a key step in establishing a monitoring mechanism is to allow the public to know the details of future supply. We recommend the government disclose dates of key development milestones and a 10-year supply list for public housing projects. We also support the introduction of market competition in public housing development, as successful cases from the Private Sector Participation Scheme suggest competition will improve efficiency.
During these testing times, the Budget can play a critical role in rebooting the city’s economy. We believe our recommendations are some of the most effective ways that will both address Hong Kong’s short-term issues and help to build the foundation for a long-term recovery.