After losing the judicial review over public housing estate rents and the subsequent application to put on hold the court order for reviewing rents, the Housing Authority is poised to take the case before the Court of Appeal to seek clarification on important points of law regarding formulation of public housing estate rents.

The deadlock has its origins in June 1997 when legislator Chan Kam-lam, from the Democratic Alliance for Betterment of Hong Kong, successfully managed to have the Housing Ordinance amended by imposing a 10 per cent ceiling on the median rent-to-income ratio whenever the Housing Authority decides to vary domestic rents, but today the ratio has increased to 13.8 per cent. Six years on, he speaks on the background of the law and suggests ways forward for the Housing Authority.

The median rent-to-income ratio (MRIR) has been in force for many years. In a few years prior to 1997, it was fixed as 15-18.5 per cent for newly-completed public housing estates while it was 4-7 per cent for old estates in the wake of a long-term housing strategy review. Before the amendment to the Housing Ordinance in 1997, the law stipulated that public housing rents were to be reviewed every two years to ensure the MRIR was commensurate with the financial affordability of the tenants, says Chan in an exclusive interview with China Daily.

In June 1997, unionist legislator Leung Yiu-chung, from the Neighbourhood & Worker Service Centre, initiated an amendment to section 16(1A) of the Housing Ordinance, suggesting that should the Housing Authority wish to review rents, reviews must be done in cycles of every three years, while the level of rent adjustments had to be in line with inflation. But Chan felt that Leung's amendment was not very satisfactory; and moved a further amendment to Leung's version with a view to controlling future rent adjustments within a fixed MRIR of not higher than 10 per cent. As Chan's amendment was passed, the ordinance has become "handicapped" as we see today.

"Prior to 1997, reviews were carried out every two years. Owing to inflation, rents were raised after every review and never were they reduced. At that time, we thought we were doing a good cause because if the amendment were passed, rent increases would be less frequent than before, but it has today become a bad cause because of deflation," he laughs as he looks back over the years.

Chan, now the chairman of the Legislative Council's Housing Panel and also a member of the Housing Authority, explains that before he moved the amendment, he had checked with the government and was told that the MRIR was only around 7.8 per cent at that time. So his proposal of 10 per cent was rather mild because there was still plenty of room for the Housing Authority to raise the rents (by up to 20 per cent) before the MRIR would exceed 10 per cent.

He also says that he had, at that time, reminded the government that once the older housing estates were pulled down and rebuilt, the MRIR may go up again very quickly and exceed 10 per cent. If that happened, the government had two alternatives to solving the problem, with the first being the Legislative Council's approval to increase the MRIR to a higher ratio.

Second, the meaning of "rent" in terms of public housing covers also rates and management fees whereas in the private sector, "rent" means rent only. The government may re-define the definition of rent by narrowing it to pure rents so as to reduce the rent level and then the MRIR.

Similarly, the MRIR can be drastically lowered if the 110,000-plus households under the scheme of the Comprehensive Social Security Allowance (CSSA), who have no incomes, out of the 640,000 households on aggregate, are taken into consideration.

"Unfortunately, the Housing Authority has been very passive and has done nothing over the past six years under Dominic Wong as Secretary for Housing, even though former Director of Housing Tony Miller had criticized the amended ordinance as a bad law.

"Still nothing was done when Michael Suen became Secretary for Housing, Planning & Lands in July 2002 until the tenants instituted a lawsuit against the Housing Authority. Maybe Suen was not familiar with housing matters when he first took up the post and again, he is very afraid of "offending" the public housing tenants, who have staunch support of political parties," Chan comments.

With an ongoing court case that could ultimately be heard by the Court of Final Appeal, the situation would certainly linger for a long time, yet he thinks the first thing the Housing Authority should do is to honour the MRIR of 10 per cent as required by the legislation.

"Whether you like the law or not, you have to abide by the law, and you should not ignore the law when problems occur. Whilst it may be difficult to have the support of political parties for amending the law, the exclusion of CSSA households from public housing tenants and a new definition of rents are relatively easier to achieve because they do not require the Legislative Council's approval."

When the legal dispute is over, Chan feels that a long-term, self-sufficient public housing policy is necessary after the major income source of the Housing Authority was blocked by the suspended sales of Home Ownership Scheme (HOS) residential flats. In the past, the Housing Authority reaped around HK$1 billion per annum from HOS sales.

To raise rents is impossible since the current MRIR at 13.8 per cent has already exceeded the statutory requirement of 10 per cent, and the Housing Authority is under pressure to conduct a rent review and slash rents by 30 per cent to comply with the law. Equally, there is no chance of the government, which is running a severe budget deficit, injecting funds into the Housing Authority.

Arrangements are being made to divest the Housing Authority's car park and shopping mall operations and they are expected to yield HK$20 billion. But Chan says: "HK$20 billion is only enough for a few years and so we must think of other plans. The Housing Authority may as well sell the public housing units now rented to the tenants so as to minimize the level of subsidy. It could be very prudent if we sell 50,000 units per year out of the 640,000 units."

On the whole, Chan says the government must review the entire public housing policy. "Today we see some very "deluxe" public housing estates with marble-tiled building lobbies and even suites. We must ask a question if the "minimal approach" should be adopted, meaning that only basic instead of luxurious amenities are provided."

(HK Edition 09/01/2003 page5)