Housing Policy in Hong Kong and Singapore

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Proposal of Policy Transfer for adapting the Extensive Housing Scheme model from Singapore into Hong Kong: Academic Discussion and Critique.

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Housing Policy in Hong Kong and Singapore

  1. 1. CITY UNIVERSITY OF HONG KONG COMPARATIVE PUBLIC POLICY Dr. Richard Walker SECOND ASSIGNMENT: Policy Transfer Proposal and Analysis LUJAN ANAYA, Raul Alejandro Student No. 52915639 Semester A/ 2012-2013 December 2012
  2. 2. Policy Transfer Proposal and Analysis Topic of Interest: Transfer of the Extensive Housing System (EHS), from Singapore to Hong Kong. The object of this work is to undertake an analysis on the implementation feasibility of policies adopted in Singapore (SG) in the housing field, to the reality of policy-making in Hong Kong (HK/ HKSAR), undertaking a one-way transfer evaluation, previous comparison between equivalent policy tools adopted in both City-States (ie.: the EHS adopted in SG within the last four decades, vs. the Home Ownership Scheme, HOS, currently adopted in the HKSAR), in the light of contextual matters (mainly of space and time) which both States have been facing in common. It’s important to notice that the matter of housing ownership is a relevant field for comparative study in policy-making between both City-States… Especially in Hong Kong, the issue of housing ownership insufficiency has drawn particular attention on international grounds, when we consider the fact that this City-State has its’ reputation on the line as a Global City: one competitive in matter of international trade and finance, an example of multicultural coexistence, and a panacea of socio-economical development, thus deserving to be placed as one of top-tier urban areas around the planet, pretty much like New York, London, Shanghai, Tokyo, and precisely Singapore (among others) [1]; at the same time it has been facing serious problems of social and spatial inequality, which can be seen on specific issues to be effectively attended, such as: nonstop demand for acquiring permanent household and proportionally increasing numbers of people in waiting lists to enter subsidized home schemes, permanent or
  3. 3. temporary (the majority of them in urgent need), among other; in relation with a hostile market where acquiring Real Estate property by own right has become a ludicrous luxury which can only be afforded by the rich. As mentioned before, we would have to consider that both SG and the HK governments had common challenges to face (mainly in the historical and demographic dimensions), such as: a) Both of them used to be British colonies, and now these two operate as free-market economies. Likewise, both of them have risen up as two cities of international projections for trade and finance, and two gravity centers of “technocratic” governance (understand this concept, as the rule and policy-making of technician- managers under the principles of ‘small government’ and ‘efficient management’: officers and civil servants which have been “encouraged to be entrepreneurial and to cut through the red tape” to achieve the goals of the State [2]) in Southeast Asia; b) In a time of 40-50 years ago, both of them had a substantial percentage of citizens facing poor living conditions and governments fell short to provide housing supply, according to actual demands; c) High numbers of density population: SG possesses a population of approximately 5 million inhabitants living in an urban area of almost 700 square kilometers (sq.km), while figures in HK are of approx. 7 million people living in an area of almost 1,100 sq.km; d) Medium income population: the average income per capita in Singapore is of approximately US$29,610.00 per annum, while that of Hong Kong is of approximately US$27,000.00-28,000.00 per annum (according to official figures from the CSD, by year 2010) [3], indeed SG has managed to continue increasing the
  4. 4. average of income per capita of its population; e) Around the decades of 1960 and 1970, both of them started implementing their public housing-ownership programs (in fact, SG started earlier, in the year of 1964, short before its’ formal independence, while HK started in the year of 1976 after the constitution of its Housing Authority, HA); f) In addition to the circumstances before mentioned, it’s also worth saying that both SG and HK governments implemented their housing ownership policy programs as tools for gaining political legitimacy from their people (even when the motifs in each case have been different). Then, having such challenges standing there for several decades, both governments in HK and SG have been historically concerned about satisfying one important need of their people: to enjoy property of household by own right… To the extent, for instance, that in Singapore, rather more than being a mere social demand, it’s been seen more as a specific right (in the legal extent of the word) to which citizens are entitled to: to live in a dignified household that conforms an essential part of their personal (and family) wealth. Though implementing similar models of offering housing ownership through the subsidized sale of public flats, both City-States adopted their policies under different approaches: while Hong Kong adopted an (orthodox) decentralized approach: facilitating a hybrid scheme of offering means-tested subsidies for both permanent and temporary housing (under the HOS and Public Rental Housing, PRH, programs respectively), and allowing both the public sector (through the HA) and private sectors
  5. 5. to serve the housing demand and provide the services, under equal conditions; Singapore went for an innovative decentralized approach, as follows… Beginning from the first years of the implementation of the EHS, the SG government acquired vast extensions of the land at under-market prices from private developers, and constituting itself as the biggest, unchallenged, landlord. Also, the government adopted measures in order to control the costs in housing production (such as the supply of the building materials for construction)… In addition, the government adopted a very unique combination of policy tools (using Christopher Hood’s NATO approach), be them: a) Nodal (information), such as a widespread and continuous promotion of the values and ideas that would uphold the implementation of such innovative model in its time, both locally (same directed to citizens as government propaganda, or to scholars and policy-analysts as an academic case of study) and on international grounds; b) Authority (regulation), such as the development of new laws, such as the Land Acquisition Act (which nowadays remains under force), and other official decrees and ordinances, which would serve as a normative frame for the design and effective implementation-enforcement of the policy; c) Treasury (financial), such as the constitution of centralized funds (like the Central Provident Fund, CPF), the reduction of tax bases and the implementation of a culture of employment under which common workers were motivated (or mostly compelled) to enter into a contributions scheme, and also the government entered into agreements and covenants with the private financial sector in order to provide credit tools to citizens which would aid them in acquiring a place they could call
  6. 6. home (loans and mortgages of easy access); d) Organizational (administrative) such as the implementation of a radical urban reform (the redevelopment of the vast territorial extensions acquired for residential purposes), the creation of a central authority competent on housing affairs (the Housing Development Board, HDB, equivalent to the now HKSAR’s HA), and restricting the provision of public rental housing schemes most exclusively to the lowest layers in the social pyramid (citizens whose incomes drop to amounts below SG$1,500.00 per month, which would be equivalent to US$1,230.00); With such combination of policy tools, which in the end was described to be “phenomenally successful” (Ramesh, 2003) [4], Singapore’s policy motto in this field was to having achieved a quality “Home Owning Society”, which rose from a cipher of a total of 29% in 1970, to more than 90% (by the decades of 2000 and 2010) of overall resident population [5]… On the other hand, the decentralization scheme for housing provision in the HKSAR got stuck in achieving to enhance the number of its home- owning population: according to statistics of the the Census and Statistics Department (CSD) between years 2006 and 2009, approximately 50% of total population in HK held ownership on private housing, and 20% held ownership over subsidized-sale flats from HA [6]: then, what about solving the situation of the other 30% of resident population, which has found itself in the need of sticking to the Public Rental Housing (PRH) and temporary programs, implemented by the HA, as their means to satisfy (or better said, palliate) their need of acquiring permanent housing by themselves? (!)… What can Hong Kong learn from its cousin Singapore, in order to solve the situation of that remaining 30%?
  7. 7. As main strategic advantages of the EHS model implemented by the SG government, we can find the following: 1. It has reinforced a culture of self-sufficiency: starting with promoting employment in collaboration with the business sectors, attracting foreign investment, and promoting the values of self-sufficiency in saving and investing to attend their basic needs, thus reducing reliance of citizens on public welfare; 2. As an innovative policy project in its time, it’s been considered by many scholars in the field, as one important milestone in the establishment and consolidation of the recent Asian Welfare Model during the last 3 decades of the XX century, and which has been influenced by the social and historical values upheld in policy-making processes and institutions of most East Asian nations, such as the (Confucian) ideals of conforming self-sufficient communities and strong family nuclei; 3. By strengthening the domestic financial sector, as the government entered into agreements with the banking corporations and finance houses for facilitating loans and mortgages, it created a profitable market in which all parties (corporations, government and citizens) gain proportional benefit from a fair scheme where “everyone wins”; 4. In the reality dimension of policy-making, the project achieved outstanding success, that it caused astonishment and caught the eye of policy-makers and scholars in the international community, to the extent that even nowadays, it has become an example to the world (“too big to be ignored”). On the other hand, we can find the following disadvantages, which can make the model very complex, and non-operant to policy-making in the HKSAR: 1. The model requires a mostly authoritarian and centralized control, “with major
  8. 8. decisions on savings rate, savings allocation, land use, housing production, and housing prices being largely determined by the government” [7]; 2. It has caused a crowd-out of private investment, the weakening of private developers, and in general, of the domestic corporate sector [8]; 3. It has created a constant need for the government, to control inflation and fixing prices in the Real Estate market; 4. It has created a problem of “asset-rich, cash-poor” citizens, which means that citizens have found themselves in the need of providing a high percentage of their income, into the contributions scheme of the CPF (and to pay their housing credits and mortgages as well), in detriment of the liquidity in their wealth, and diminishing their capacity to respond effectively to other needs or contingencies that may eventually present, such as unemployment or health illness conditions; 5. Transparency issues, because, as the government entered into agreements with the financial sector and insurance companies for the facilitation of credit tools, and investment of monies in the centralized funds, the economic dimension of the policy is handled at the discresion of third parties whose interests are not clearly related to those of the major stakeholders (government and society), in what we may call a “black box” experiment: in which outcomes may be uncertain; likewise, it’s well known in the media and academy forums, that politicians and policy-makers in SG aren’t transparency-friendly neither open to criticism, so it’s very unlikely that they would be willing to disclose information on the processes implemented and outcomes achieved in the operation of housing policies. In addition to the previous comparison of strategic advantages and disadvantages about the EHS policy model from SG, we should take into account, for the case of Hong
  9. 9. Kong, the fact that, even when there have been subsidies and incentives granted to common citizens (mostly middle-income) under the HOS program implemented by the HA, the housing ownership model in the HKSAR has been affected by the PRH policies, which by matter of law and polity, have been required to coexist in balance, so the government can’t change the current framework so swiftly, by setting up restrictions in the means-test system for entering the PRH scheme (specifically by matter of income), as the Singaporean government did. Also, and in the light of increasing demand for entering into both temporary and permanent housing schemes, it would be certainly unlikely that the HA would allow applicants in waiting lists, to apply as twice or more, as the SG government has lifted such restriction… In this specific case, we can observe one more typical case of path dependence prevailing for the implementation and operation of housing policies in Hong Kong. As specific lessons to be learned from the Singapore experience regarding EHS, for adapting into the practical dimension of policy operation in the HKSAR, we may find the following: 1. A government-centered scheme may lower the costs on development of lands, relying on scale economy (as it’s been happening not only in SG, but in other nearby countries, as Brunei [9], which have been facing a new paradigm: an increasing demand of small family nuclei and young singletons seeking to acquire household of their own), for as the market would continue to expand and operational efficiency is achieved, it would result feasible to reduce the costs of newer units (flats) produced; in contrast, any core problems coming from within the government (such as corruption issues, or procedural inefficiency), may increase negative effects on policy economy;
  10. 10. 2. At some extent, concentrating the allocation of resources coming from compulsory savings schemes into centralized funds (as both the CPF in SG, and the MPF in HK) for the operation of housing ownership programs, may bring economic efficiency in providing the relevant public services, but we should also consider that priorities of the government in operating policy programs in one field may also enter in conflict with the needs of citizens: as we’ve seen in the case of SG, compelling workers to contribute into the CPF with substantially higher percentages of their income, may affect liquidity in citizens’ wealth (affecting their response capacity to other contingencies); and similarly, concentrating more revenue resources from the public funds into the housing field may affect the provision of other welfare facilities, such as those concerning healthcare, unemployment and retirement, among other; 3. Also, in contrast to what the SG government has done, letting banking and insurance companies invest funds coming from the CPF savings in the “black box” experiment previously mentioned, the HKSAR government could consider providing grants (even when minimal), using the resources from the MPF in-hand; 4. The HDB in recent years, implemented a new plan named “Built to Order” (BTO), which may be used as a reference to achieve balance between supply and demand in the housing market, as the SG government realized that if it continued developing lands for housing purposes indiscriminately, considering that in recent years, more than 90% of overall resident citizenship has achieved to live within a household of their own, market inefficiency (excess in housing stock) would drive the concerning authority to cancel the EHS, causing inflation of Real Estate prices and hurting the local economy; 5. Subsidies and loans granted by the HKSAR government to facilitate access to the domestic HOS may be granted under a means-test system, in order to relieve
  11. 11. pressure derived from limitations in supply and demand, such as limited capital resources and increasing ownership numbers. In addition to the specific lessons that HK may learn from the SG experience, and considering the issue of path dependence mentioned a couple paragraphs above (the fact that the HOS program needs to coexist with the PRH in legal and political synchrony), success in the implementation and running of the domestic policies can only be measured according to the balance achieved between both temporary (PRH) and permanent (HOS) housing provision programs, and not merely by the amount of people acquiring units from the HOS program. To summarize, by undertaking one final assessment (revisiting the NATO approach) on how can policy tools from Singapore be applied in this policy transfer proposal to reality in Hong Kong, we found the following: a) Nodal: The promotion of the housing policy-model in SG has been successful in domestic and international grounds; in contrast, it’s unlikely that certain policy aspects would be friendly received by: as it’s happened in the case of the compelling contributions scheme, since it’s well known that HK people aren’t very fond of entering into enhanced contribution schemes, as it has happened in the case of the Mandatory Provident Fund (MPF), in which many employees in the HKSAR haven’t found themselves willing to provide more than the compulsory 5% [10] in current terms of the MPF; b) Authority: New regulations and decrees would be relatively easy to implement; in contrast, the outstanding legislation in matter of Housing in the HKSAR would require major amendments which would be time consuming, and would represent a
  12. 12. slow process for carrying out the consultations and reeducating both citizenship and civil servants in getting used to new frameworks, not to mention that the interests of the Central Government in the People’s Republic of China (PRC) must be considered as well; c) Treasury: The implementation would be favorable to the economic interests of lower and middle income average households, and even convenient for banks and financial houses, because they would have thousands of new customers; in contrast, it would carry unmeasurable costs at government level, which may affect revenue, and cause damages and liabilities to private business developers and within the public sector, as I’ll explain furtherly; d) Organization: It would bring a substantial enlargement in the public sector of the HKSAR, which in the end would be a double-edge sword, representing on one hand, more menpower in the civil service working to attend this social need, but bringing collateral effects of costs in both policy economy and economic policy. As preliminary to conclusion, we could tell from our presentation that, at least from a theoretical point of view, the prospect of transferring permanent housing ownership policy implemented in SG, specifically the EHS program, seems to be a good idea, however in practice it would result very much less feasible, for it would result in unmeasurable costs, since the HKSAR government, nowadays doesn’t possess enough capacity, menpower, or economic might to centralize (even monopolize) the housing market… Indeed, this has also become a very much politicized topic, since from a historical point of view, the SG government made a smart move in implementing an adventurous project, in a time when social and economic conditions worldwide weren’t as complex as today, and when most governments around the globe were big enough to
  13. 13. afford intervening in markets and implementing gradual changes: today it would result suicidal, considering a current context of quick shifts in economic conditions, and tighter interdependence in finance and trade between States and business personae around the world, as these two are the most tasty fruits reaped from the Globalization phenomenon, thus right now would be “too late” for the Hong Kong government to make such a risky move… Why a risky move? Because importing the disadvantages of the SG model, would not only affect the government in its economy and capacity, but also damage the Real Estate market and eventually affect foreign investment: private developers are some of the most relevant actors and stakeholders in the policy field, as we can observe that direct intervention by the SG government has caused substantial inefficiencies in their domestic market (monopolization, lack of innovation and transparency): an undesirable outcome when it comes to the fact that public development in the HKSAR is pegged, or at least proportional, to growth in the local business sector, and which would represent a wrongful lesson which none of the relevant stakeholders: the government (along with the Central Government of the PRC), representatives of the business sector, middle income citizens, and on a lesser extent, NGO’s, is prepared to learn the hard way. As conclusion, and providing a “best-guess” approach, let’s say, if the model was feasible for being implemented in the HKSAR, we can take the chance to do a projection under which, within the following 8 to 10 years, we may expect a substantial reduction in waiting lists for people intending to enter public housing schemes (temporary) by around 60-70% (considering a current figure of approx. 300,000 applicants, from which an estimate of 200,000 find themselves in urgent need); at the
  14. 14. same time, it may be possible to extend the number of home-owning population in Hong Kong, from 20% to 30-35% of total residents in Hong Kong (with an overall projection of almost 7.8 million people by early 2020’s [11])… In the end, most probably our transfer proposal will be another idea that shall remain in paper, even when it’s “worth spreading”; however it certainly was a very interesting topic for academic discussion. Thank you for your Attention!
  15. 15. References and Remittances List: [1] “Global City”; Wikipedia, the Free Encyclopedia: http://en.wikipedia.org/wiki/Global_city [2] Scott, Ian. The Public Sector in Hong Kong: Policy, Government, People. Hong Kong University Press (2010), p. 58; [3] “Hong Kong, the Facts: Population”; Hong Kong Government Factsheets: http://www.gov.hk/en/about/abouthk/factsheets/docs/population.pdf [4] Sock-Yong Phang; The Singapore Model of Housing and the Welfare State; Singapore Management University, School of Economics (2007); p. 15: http://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=1595&context=soe_research& sei- redir=1&referer=http%3A%2F%2Fwww.google.com.hk%2Furl%3Fsa%3Dt%26rct%3 Dj%26q%3Dsingapore%2Bmodel%2Bhousing%2Bwelfare%2Bstate%26source%3Dw eb%26cd%3D1%26ved%3D0CCwQFjAA%26url%3Dhttp%253A%252F%252Fink.lib rary.smu.edu.sg%252Fcgi%252Fviewcontent.cgi%253Farticle%253D1595%2526conte xt%253Dsoe_research%26ei%3DyNitUJ6gA_CXiQeooYHYAg%26usg%3DAFQjCN HILXGcx4oZDxo1mQphm_LLdukVRw%26sig2%3DKAkQ821xDqQ_vPuUPZzonQ# search=%22singapore%20model%20housing%20welfare%20state%22 [5] Ibid., p. 15; [6] “Housing in Hong Kong”; Wikipedia, the Free Encyclopedia: http://en.wikipedia.org/wiki/Housing_in_Hong_Kong [7] Sock-Yong Phang; The Singapore Model of Housing and the Welfare State; Singapore Management University, School of Economics (2007); p. 39 (Link referred in number [4]); [8] Ibid., p. 39; [9] “Economies of Scale: A superlative housing scheme gets under way”; Oxford Business Group: http://www.oxfordbusinessgroup.com/news/economies-scale-superlative-housing- scheme-gets-under-way [10] “Hong Kong, the Facts: Mandatory Provident Fund”; Hong Kong Government Factsheets: http://www.gov.hk/en/about/abouthk/factsheets/docs/mpf.pdf
  16. 16. [11] Hong Kong Population Projections 2007-2036 (July 16, 2007): http://gia.info.gov.hk/general/200707/16/P200707160137_0137_29676.pdf Bibliography, Support Material and Additional References: • Scott, Ian. The Public Sector in Hong Kong: Policy, Government, People. Hong Kong University Press (2010): Chapters 3, 10; • Howlett, Michael. Designing Public Policies: Principles and Instruments. Routledge, New York (2011): Chapters 4, 9; • Sock-Yong Phang; The Singapore Model of Housing and the Welfare State; Singapore Management University, School of Economics (2007) (Link referred before); • Fong, Peter K.W. A Comparative Study of Public Housing Policies in Hong Kong and Singapore. Hong Kong University, Centre of Urban Studies and Urban Planning (1989) [From HKU Scholars’ Hub: http://hub.hku.hk/] • Wong, Lili. United Nations Public Service Award: Singapore’s Home Ownership Program (PPT Presentation). Housing and Development Board; • “Squatters no More: Singapore Social Housing”; Global Urban Development Magazine: http://www.globalurban.org/GUDMag07Vol3Iss1/Yuen.htm • “Hong Kong’s Land Policy: A Recipe for Social Trouble”; Hong Kong Journal (2011): http://www.hkjournal.org/archive/2011_spring/3.htm

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