tim's experiment

It is nice to see it almost universally recognised that the cost of housing in Hong Kong is becoming outrageous. Last week saw the passage of another grim landmark – a former public housing unit sold for more than a million dollars. I hope this made the idiot ideologies who insisted that public housing flats should be available for purchase by their occupants feel better. It made me feel that a flat which mighrt once have housed the desperate was now available to house millionaires. No doubt there will be limits to the gentrification of former public housing estates, if only for reasons of prestige, or lack of it. Still, we are left with a situation in which buying a small flat for a newly wed couple is beyond the reach of even two of the sort of salaries which most young Hong Kong people can command. Buying a flat in which one might wish to raise a few kids is simply beyond the reach period.

I do not seek your sympathy for me. Actually the Hamlett family benefited greatly from Mr Tung Chee-hwa’s demonstration that a government which controls the market in land can make house prices go down as well as up. While everyone was complaining about negative equity we bought a house which we could never have afforded before and we have not been able to afford since. What this experience illustrates, of course, is that price movements in any direction are not good or bad in themselves. They benefit some people and cost other people money. This explains why there is a certain infirmity of purpose in the government’s present attempts to reduce the rate at which the cost of housing is increasing. I put it in this rather elaborate way because I think to say that the government is trying to lower housing costs is to give them credit they do not deserve. There are two reasons for this.

One is that actually our legislators and their sycophants and small horses have their own interests at stake. If you look at the register of members interests, or take the trouble (thank you, SCMPost) to look up the interests of the political appointees who, at enormous expense, carry their briefcases, you will find very people who own no flats, quite a lot who own one, and a clear majority who own two or more. No doubt in a few cases the extra flat is for a relative, the domestic servants or the book collection. But in the majority of cases our leaders are investors in the very racket which they are now pretending to deplore. They have bought flats in the hope of making money by selling them at higher prices. I do not suggest that we shall see anything as shameless as people seeking to boost housing prices as a way of increasing the value of their own investments. I do believe that people in this position are likely to find arguments which tend to complacency more persuasive than those which tend to urgent action.

The second reason is the “negative equity” con. Look, if you buy a house its value as a resale object is a matter of pure fiction. You own a house or flat. You can live in it. If the price goes down you can still live in it. It is just as warm and waterproof as it was before. Now there is a catch in some places, and that is that you may need to move. If you live in a mining town and the mine closes then you will probably not be able to find a job locally. As large numbers of people are in the same position it is quite likely that the value of your home will fall, and you may well find it is worth less than the amount you still owe the bank. This presents an agonising dilemma and explains much of the pain caused in places like America and Spain by the bursting of local property bubbles. The choices lie between bankruptcy and unemployment, with a strong possibility of both. But this will never happen in Hong Kong, because ours is a small city with decent public transport. One would not, if given the choice, choose to commute between, say, Chai Wan and Tin Shui Wai. But it is possible, in the sort of times commonplace in sprawling commuter cities in other countries. So a Hong Kong person whose flat is having a downmarket moment can sit it out.

Negative equity is not a threat to home-owners. It is, of course, a threat to real estate investors. If the flat is worth less than you borrowed to buy it then your prospects of a profit are dim. It is also a threat to banks. Owners whose homes are worth less than the outstanding loan may be tempted to throw in the towel, send the bank the keys and leave it with a house or flat worth less than the loan for which it was supposed to be security. So any time there is negative equity we will here a concerted moan of dismay and sympathy for the victims, which is actually a hymn to hypocrisy. It will, though, be heard by Hong Kong officials, whose ears are particularly sensitive to any communication from the real estate business or the banks which support and batten off it.

So do not expect too much. It has been interesting, in recent months, to see how many people now recognise that Hong Kong enjoys government of the rich, by the rich and for the rich. It has been even more interesting to see many commentators suggesting that unless this is changed there will be some kind of violent explosion. This is all rather theoretical, though. And anyway, in a competition between greed and fear, greed usually comes out on top.