An Inquiry into the Relationship between Hong Kong's Current Economic Crisis and Housing Policy (out of stock)

An Inquiry into the Relationship between Hong Kong's Current Economic Crisis and Housing Policy The recession in Hong Kong beginning in 1998 is unprecedented not only because it represents the first incidence of negative growth in GDP since official growth data became available in 1963, but also because of its depth (-5.0%) and because of the failure of the economy to recover from the recession. The official explanation for the recession is the Asian Financial Crisis (AFC), but the AFC can hardly compare with the many crises that Hong Kong has weathered in the past, including the Cultural Revolution of the 1960s, the oil price shock of the 1970s and the resulting global recession (the Hang Seng Index fell more than 90% from 1973 to 1975), and the real banking crises of the 1960s and 1980s, which witnessed the failure of a number of banks. By contrast, during the AFC, not a single licenced bank failed. An alternative explanation of the recession is given by the author, who argues that a misguided housing policy led to the collapse of the housing market and is the cause of its failure to recover. Evidence is presented for the theory that the Tenants Purchase Scheme (TPS), which offered sitting tenants the opportunity to buy their own units at deeply discounted prices, played a key role in the collapse of the housing market. Public housing tenants had been a significant player in the private housing market and, in particular, had been the main purchasers of Home Ownership Scheme (HOS) housing. TPS essentially lured potential HOS and private housing buyers back to buying public housing flats instead. When they stop buying, private flat owners and HOS owners cannot trade up. The housing ladder was therefore severed. In addition to this effect, the huge overhang of supply created after 1997 also played a key role in preventing the housing market from recovering, notwithstanding a pick-up in exports. Housing being the main store of wealth for Hong Kong's middle-class households, a collapse in housing prices produced a huge wealth effect, curtailing consumption and private domestic investment. Unemployment therefore shot up quickly. A collapse in housing prices is the key explanation for the emergence of deflation from late 1998.