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Hong Kong Pledges Affordable Homes in Shift to Bigger Government

Donald Tsang, chief executive of Hong Kong. Photographer: Thomas Lee/Bloomberg
Donald Tsang, chief executive of Hong Kong. Photographer: Thomas Lee/Bloomberg

Oct. 12 (Bloomberg) -- Hong Kong Chief Executive Donald Tsang promised to provide more affordable homes and signaled greater government intervention in narrowing social inequality that has stoked public anger.

More than 17,000 subsidized homes will be available over four years from 2016, Tsang said today in his final policy address before his term ends next year. The government will also provide land for 20,000 private homes a year, and offer sweeteners including rental waivers and help with transport fares for the elderly.

Tsang’s popularity dropped as a 70 percent jump in home prices since the start of 2009 and the fastest inflation in three years have led to protests amid a widening wealth gap. The core ideology of “big market, small government” that has won Hong Kong the title of the world’s freest economy for 17 years, is being challenged by the need to tackle poverty related to structural changes in the city’s economy, Tsang said.

“Hong Kong has been moving away from its laissez faire roots,” said Joseph Lau, an economist at Societe Generale SA in Hong Kong. “To avoid social tensions, more income redistribution is necessary, which means the government has to play a greater role.”

Tsang took office in 2005 after mass protests led his predecessor to quit, and with the economy smaller than when the city was returned to Chinese rule eight years earlier. Gross domestic product growth of 26 percent since then, unemployment at a 13-year low and a minimum-wage law have failed to halt the slide in his popularity.

Mixed Benefits

Proximity to China boosted exports, retail spending and services -- along with the construction of office towers to accommodate the Asian headquarters of firms such as JPMorgan Chase & Co. and HSBC Holdings Plc. Still, an influx of mainland money pushed home prices beyond the reach of many people.

China’s official overseeing the city, Wang Guangya, warned Tsang in June that housing may become a “political problem.” Tens of thousands of demonstrators marched July 1 to protest escalating housing and rental costs.

“Despite sustained economic growth in recent years, the widening of the wealth gap is still a source of social discontent,” Tsang said. “Poverty in Hong Kong is related to economic restructuring,” reducing demand for “low-educated, low-skilled workers, which has slowed their wage growth.”

The average annual income of the wealthiest 10 percent of Hong Kong’s households gained 13 percent between 2005 and 2010 to HK$961,800, government data show. Income for the poorest 10 percent rose 2.5 percent to HK$37,200. Consumer prices excluding distortions from subsidies rose 6.3 percent in August from a year earlier, the highest rate since the global financial crisis in 2008.

Food Costs

A 4.7 percent gain in the yuan against the dollar in the past year has driven up food costs in the city, which imports most of its fresh produce from the mainland. Tsang said the government would seek to diversify sources of food and stabilize prices.

The government-subsidized plan, or home-ownership scheme, will be targeted at families with a monthly household income of less than HK$30,000 ($3,854), mainly first-time home buyers, Tsang said. The price of new homes under the program will be based on household income, rather than in reference to prices in the private market. Tsang in 2002 scrapped a previous subsidy program that developers said helped drag the property market lower because prices were set at a discount of about 30 percent to the private market.

The government will rezone industrial land for residential use to ensure stable supply, and keep its target of adding 15,000 public housing units a year, he said.


“When private housing is in short supply and property prices rise to a level beyond people’s purchasing power, the Government has to intervene,” Tsang said.

Rents for public housing will be waived for two months, the disabled will get a one-off extra allowance and elderly residents who moved to China to escape Hong Kong’s high prices will be able to receive benefits, Tsang said. The city’s low birthrate will mean a quarter of the population will be aged 65 or older by 2030, and Tsang pledged more hospitals.

Tsang’s administration has already handed out more than HK$180 billion in one-off relief measures, including power subsidies, tax rebates and other sweeteners in the past four years.

To address discontent, Tsang introduced a minimum wage in May of HK$28 per hour, which he said showed the government is “ready to intervene in the market” to improve the livelihoods of low-income people. Over the long-term, the solution to the problem was to invest in education and improve social mobility, he said.

Sales Slump

“The policy address seems to lack new measures to bridge the widening income disparity, and none of these are pre-emptive,” said Raymond Yeung, an economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. “As the private property begins to correct, it is not a good time to inject too much supply.”

The number of home sales in Hong Kong slumped 54 percent in September from a year earlier on concern the global economy may slow. Developers’ reversed early losses as Tsang’s address ease concerns of more curbs to damp price increases.

The Hang Seng Property Index, which tracks the city’s seven biggest developers, advanced 3 percent at the close in Hong Kong, after falling as much as 2.3 percent. It was the biggest gain among four industry groups on the benchmark Hang Seng Index.

Limited Impact

“The housing policy will have limited impact on the private property market because the units the government will launch in the first year is very small and it’s targeting a different group of people who can’t afford private housing,” said Jonas Kan, a Hong Kong-based analyst at Daiwa Capital Markets. “This is not targeting to curb the private market.”

Henry Tang resigned last month as chief secretary to consider whether to run against Leung Chun-ying, who stepped down from the government’s top advisory body Oct. 3.

Tang backed Tsang’s focus on addressing the housing needs of lower-income families in a briefing to journalists after the speech.

To contact the reporters on this story: Sophie Leung in Hong Kong at; Marco Lui in Hong Kong at

To contact the editor responsible for this story: Paul Panckhurst at

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