Hong Kong has a long history of public housing development. For about 50 years, the Government and the Housing Authority have been making huge investment in the provision of subsidised rental housing to low income families who cannot afford private housing.
Public housing has gone beyond the provision of dwellings to families in need. It has become an important pillar of social development and stability. At present, about 30% of the Hong Kong population live in public rental housing provided by the authority. Among them, more than 60% - about 400,000 households - pay less than $1,500 per month as rents.
The authority provides a wide selection of flat types to meet the needs and affordability of different families, with rents ranging from $252 to $3,810 per month. The rents of public housing units are inclusive of rates, management fees and maintenance expenses.
Tenants' affordability always an important factor
Lawmakers suggest that the administration should formulate a set of rent policies that is caring and sustainable and also refer to the need to set rents based on tenants' affordability. Government and the Housing Authority subscribe fully to these broad principles. As a matter of fact, tenants' affordability has all along been an important consideration that the authority takes into account when fixing and adjusting public housing rents.
Section 4(4) of the Housing Ordinance clearly stipulates that the authority's policies shall be directed to ensuring the revenue accruing to it from its estates shall be sufficient to meet its recurrent expenditure on its estates.
When considering rent adjustments, the authority therefore used to take into account a host of relevant factors including tenants' affordability, inflation/deflation, salary trends, management and maintenance expenditure and the authority's overall financial position. This was to ensure that public housing rents were maintained at reasonable levels and helped promote the long-term sustainability of the public housing programme.
However, following the amendments to the Housing Ordinance adopted by the then Legislative Council in 1997, which stipulate that the overall median rent-to-income ratio of public housing tenants shall not exceed 10% after any rent adjustments by the authority, the median rent-to-income ratio has become the sole determining factor in deciding the extent to which public housing rents need to be adjusted.
Rent policy review must consider sustainability
I concur that the present rent policy review should not aim at raising the authority's revenue, nor should it be seen as a means to resolve its financial problems. However, a more rational and flexible rent policy would be instrumental to enhancing the long-term sustainability of the public housing programme.
Naturally, the Government and the authority are very concerned about the authority's financial position, particularly over the need to ensure adequate cash flow to maintain necessary services and operations.
To this end, the authority has already rolled out a number of measures to raise revenue and cut costs. It has also embarked upon a major restructuring in respect of estate management and other aspects of its work with a view to delivering its objectives more effectively under a streamlined staffing structure.
Both the Government and the authority fully understand the implications of the statutory median rent-to-income ratio cap under the Housing Ordinance, which has not only severely constrained the authority's power to adjust rents, but also distorted the rationality and sustainability of the overall domestic rent policy.
Ad hoc committee reviews domestic rent policy
The authority therefore decided in early 2001 to establish an ad hoc committee to undertake a root and branch review of its domestic rent policy. The objective is to formulate a rent fixing and adjustment mechanism that is more rational, flexible, and helps promote the sustainable development of the public housing programme.
Between April 2001 and October 2002, the committee held nine meetings to discuss and review various issues concerning domestic rent policy. In the course of the review, however, two public housing tenants obtained leave from the High Court to apply for judicial review in respect of the authority's decisions to defer reviewing the rents of individual estates.
Since the judicial review cases centre around the proper interpretation of the provisions under the Housing Ordinance that place limitations on the authority's power to adjust rents, and touch on certain important principles that underlie the authority's rent policy, the ruling would have a profound impact on the rent policy review. For this reason, the committee decided in October 2002 to suspend the review.
Following the handing down of the judgment on the judicial review cases by the Court of First Instance of the High Court in July 2003, the committee resumed its work in September 2003 and held six meetings since then. It has considered the implications of the Court's judgment for the overall rent policy and revisited various options for improvement.
Committee looks at index-linked rent-adjustment mechanism
Specifically, it has considered an index-linked rent-adjustment mechanism based on the movements of price levels or tenants' income; a system of differential rents whereby the rents of public housing units are fixed with reference to the units' location, floor level, orientation and other features; options to improve the methodology for calculating median rent-to-income ratio; the feasibility of introducing fixed term tenancy; whether rents should be inclusive of rates and management fee; indicators for measuring tenant's affordability; and rent review cycles.
The review of domestic rent policy has been underway for some time and the committee has discussed individual topics in detail. However, there are quite a number of issues touching on the proper interpretation of the Housing Ordinance and the statutory duties of the authority, which are also the focal points of contention in the judicial review.
In addition, the authority has lodged an appeal against the judgment of the High Court because of the immense public interest at stake. The committee must therefore await conclusion of the appeal proceedings and have the important legal points clarified before commencing formal public consultation on its initial findings.
Public views, collective wisdom key
Lawmakers have mentioned that the authority should listen more to the views of public housing tenants and provide more opportunities and channels for them to participate in managing public housing affairs. I agree that it is important to listen to public views and draw on collective wisdom.
Members of the authority are drawn from different walks of life, hence can effectively reflect the views of different sectors of the society. There are established channels, such as the "pre-meetings" of the Subsidised Housing Committee, through which members can obtain feedback from tenants directly and proactively.
When contemplating changes to major policies, such as the current review of domestic rent policy, the authority will, as an established practice, consult the public widely before making any decisions.
A lawmaker proposes a tier system for rent fixing whereby rents will be determined based on tenants' income and affordability. I fully appreciate the rationale behind the proposal, which is to link rents to tenants' income so that those with higher income will be required to pay higher rents and vice versa.
Rent fixing based on income would incur huge costs
However, implementing the proposal would incur huge administrative costs, involve complicated technical issues and have serious implications for the overall public housing allocation policy.
First of all, the implementation of the proposed system would call for regular individual assessment of the income of more than 600,000 public housing households. This formidable task would require enormous manpower resources and considerable time to complete, not to mention the hefty administrative costs involved.
The practicability and cost effectiveness of such a complicated rent fixing and adjustment mechanism are highly doubtful. Furthermore, if rents were fixed entirely with reference to tenants' income without taking into account such important factors as flat size, location and estate facilities, the level of rents charged by the authority would no longer reflect the true rental values of the concerned units.
In the circumstances, it is conceivable that the rents of flats with high rental values may turn out to be lower than those with low rental values. In the long run, this would have serious ramifications for the rational allocation of public housing units to prospective tenants.
Assistance programmes in place for tenants in need
Others have raised the question about what we can do to assist tenants with financial hardship and to enhance the rent assistance scheme. Over the past few years, the Government and the authority have already implemented a series of measures to help tenants tide over this period of economic difficulties.
These included granting rent increase waivers since 1998, waiving the rents of all public housing and Interim Housing units for the month of December 2001 and refunding the rates rebate offered by Government on four occasions between 1998 and 2003.
In addition, the authority has put in place the rent assistance scheme to assist tenants who encounter temporary financial hardship and are unable to afford paying normal rents. Under the scheme, tenants will be offered a 50% rent reduction if their incomes are 50% below the Waiting List income limit or their rent-to-income ratio over 25%.
The committee had looked into the operation of the scheme carefully and recommended a series of enhancement measures to the authority in 2002. These recommendations were made in advance of other rent policy review proposals and were endorsed by the authority.
Housing Authority endorses enhancements to scheme
Under the enhanced scheme, the income limit of elderly households is relaxed from below 50% to below 60% of the Waiting List income limit and the rent-to-income ratio threshold lowered from 25% to 20%.
All tenants affected by redevelopment, including those rehoused to new flats, may apply for rent assistance immediately upon rehousing. Moreover, the grace period after which beneficiaries of rent assistance are required to move to cheaper flats is extended from two to three years.
Apart from the scheme, tenants facing long-term financial hardship may apply for the Comprehensive Social Security Assistance. CSSA recipients are normally given rent allowance equivalent to the amount of the rents payable. About 120,000 public housing households are currently receiving CSSA, representing around 20% of the total number of public housing households.
In addition, more than 14,000 households are beneficiaries of the rent assistance scheme. Together, we believe that the CSSA and the scheme can provide an effective safety net to ensure that no families would find public housing rents beyond their affordability for want of financial means.
Criteria aim to ensure only those in genuine need get housing
Another lawmaker has also suggested we review the eligibility of public housing applicants. Although the eligibility for applying for housing does not fall within the terms of reference of the committee, it has been an established practice for the authority to review the Waiting List income and asset limits for public housing annually.
Suitable adjustments to the limits will be made in the light of the prevailing economic and social conditions to ensure that public housing is made available only to those in genuine need.
Following a comprehensive review in 2002, the authority has adopted a series of measures to relax and improve the mechanism and formula for assessing the Waiting List income and asset limits. As a result, the existing limits are in fact much higher than what would have been under the previous formula.
We reckon that about 123,100 households (or 35.2%) living in non-owner occupied flats are now eligible for public housing, which is considerably higher than the average of 114,500 households (or 33.4%) during the last decade.
In any case, the authority's Subsidised Housing Committee has accepted the proposal put forward by the LegCo Panel on Housing earlier this year to revisit the formula for assessing the Waiting List income and asset limits before conducting the review of the limits next year.
Conclusion
The Housing Authority has been mindful of the need to have a comprehensive review of its domestic rent policy. Indeed, it has already initiated the review process. Today's debate has thrown up many useful ideas on how we should take forward the review and I thank Members for their contribution.
I will certainly relay to the ad hoc committee the views of this Council. The committee will carefully listen to and analyse the views of the public before submitting its proposed improvement measures to the authority.
I am confident that different quarters in our community will have a rational discussion on this important issue and forge a consensus upon which a set of rent policies that is acceptable to both the tenants and the community at large and conducive to the sustainable development of the public housing programme could be formulated.
Secretary for Housing, Planning & Lands Michael Suen gave this address in the Legislative Council in response to a motion on Review of Rent Policy moved by Lau Ping-cheung.
