Is Hong Kong’s Subsidized Housing Fair?

Bernie Lo|Anchor, CNBC Asia Pacific

Jeff is mad. Mad at poor people. That's the impression I got at first when I saw his angry letter in the paper. "I read with disgust that public housing tenants will get another rent-free month......taxpayers have to foot that bill while paying our mortgages on our own ridiculously high rents".

Hong Kong skyline
Photodisc | Getty Images

Recently the government announced it was raising rents on public housing around 10 percent, but giving a free month to offset that. This year's budget already rewarded these tenants with two months of free rent. So these renters get 3 out of 12 months free this year.

Few visitors realize that about half the people in Hong Kong live in welfare housing. After all, this is widely regarded as a freewheeling capitalist society with barely any social safety net. But not only do these tenants get a lot of rent-free months, they pay a fraction of the real cost of housing here.

The median monthly rate in Housing Authority estates is about $175. According to government statistics, the lowest class of private market housing, apartments smaller than approximately 400 square feet, rent for an average of about $1,635.  That's almost ten times more than the similar class of assisted housing, though these numbers can vary considerably.

But these people are poor and need help right?

"Housing in the private sector is simply unaffordable for households earning less than say $1,923 a month", says Peter Churchouse, Chairman of property investment company Portwood Capital. Churchouse is a three-decade veteran in Asian property markets, and served 15 years as a Managing Director at Morgan Stanley.

Government data shows that 42 percent of households are indeed below that threshold. If a family at that income level had to pay out $1,635 of its monthly pay in rent, that would mean 85 percent spent on rent. That means very little left for food, clothing, and everything else.

But are the extremes in rental rates contributing to the anomaly? Churchouse suggests that the extremely low rents in public estates keeps people onsite even when they can afford nicer places, "some people may opt to stay in public housing and take their cash for other investments, including investment property.”

He estimates that 13 percent of public tenants own property in the private market. A cursory glance at the parking lots of public housing estates shows no lack of late model Toyotas, Nissans, and BMWs.

Jeff, the angry guy, says "if these public housing tenants can get three months rent-free, I want a three month rebate on my taxes.”

No reasonable person begrudges giving a helping hand to those genuinely in need. But it might be time to rethink how a precious resource like housing is distributed, and bring in means testing and other ways to make sure public housing is where needy people live, and not where they live way beyond needing it any more.