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Following is a question by the Hon Wong Kwok-kin and a reply by the Secretary for Transport and Housing, Professor Anthony Cheung Bing-leung, in the Legislative Council today (June 22):
Question :
The Housing (Amendment) Ordinance 2007, which has come into operation since January 1, 2008, adopts a new rent adjustment mechanism for public rental housing (PRH) (the mechanism) to replace the statutory cap under which the median rent-to-income ratio must not exceed 10% following any rent increase. Under the mechanism, PRH rent is reviewed once every two years and adjusted according to changes in tenants' household income. Quite a number of members of the public have relayed to me that PRH rent has only gone up but never gone down since the implementation of the mechanism, and that the rent increases have not taken into account the affordability of PRH tenants. In this connection, will the Government inform this Council:
(1) of the overall cumulative rate of increase in PRH rent since the implementation of the mechanism; how such figure compares with the respective cumulative rates of increase in Composite Consumer Price Index, Consumer Price Index A and real wage during the same period;
(2) as there are comments that the mechanism, without taking into account various relevant factors (e.g. the inflation rate, tenants' household income being time-lagged data, and the adjustments made to the PRH Waiting List income limit), does not have regard to the affordability of PRH tenants, whether the authorities have assessed if such comments are justifiable; if they have assessed, of the details; whether the authorities have assessed if there are inadequacies in the mechanism under which the magnitude of rent adjustment is calculated solely on the basis of the changes in tenants' household income; if they have assessed and the outcome is in the affirmative, whether the authorities will expeditiously review the mechanism; if not, of the reasons for that; and
(3) as it has been reported that the authorities will, in accordance with the mechanism and on the basis of the latest information about PRH tenants' household income, increase PRH rent by about 10% later, but Hong Kong's economy has gradually worsened in the past six months and the livelihood of some grassroots tenants has been affected as a result, whether the authorities will consider introducing relief measures (e.g. waiver of PRH rent) to alleviate the livelihood pressure of grassroots tenants?
Reply:
President,
The Housing Ordinance provides for the public rental housing (PRH) rent review and adjustment mechanism. As stipulated in section 16A of the Ordinance, the Housing Authority (HA) shall conduct a rent review every two years and vary the PRH rent if the change in the income index between the first and second periods covered by the review is more than 0.1%. Take 2016 rent review as an example, the first period is 2013 and the second period is 2015. If the income index increases by more than 0.1%, the HA shall increase the relevant rent by the rate of the increase of the income index or 10%, whichever is less, which effectively "caps" any rent increase at 10%. If the income index drops more than 0.1%, the HA shall reduce the relevant rent by the rate of reduction of the income index. There is no limit on the extent of rent decrease.
My consolidated reply to the question raised by the Hon Wong Kwok-kin is as follows.
The current rent adjustment mechanism was proposed by the HA after lengthy discussions and extensive public consultation since 2001. After detailed examination and the eventual passage of the relevant bill by the Legislative Council (LegCo) in June 2007, the mechanism came into operation on January 1, 2008. In formulating the mechanism, various adjustment methods (i.e. Consumer Price Index (CPI) (A), CPI(A) excluding housing expenditure, median monthly household income and income index) and their pros and cons have been thoroughly examined, with in-depth discussion at the relevant LegCo Bills Committee. LegCo eventually endorsed the current mechanism and confirmed that using tenants' household income as the basis for rent adjustment best reflects their affordability.
Under the current mechanism, the rent is adjusted according to the change in household income of PRH tenants rather than the rate of inflation. This seeks to protect the tenants as changes in inflation and income may not bear much relationship. CPI reflects the level of consumption expenditure rather than affordability. In addition, the Housing Ordinance stipulates that the HA shall review the PRH rent as soon as practicable. It takes time for the Housing Department to collect tenants' income data for the Census and Statistics Department to calculate the income index independently. Income data up till December of the previous year were covered in each rent review. The income data has duly reflected the latest economic situation without time lag. As for the HA's annual review of PRH income limit, the objective is to determine the eligibility of new PRH applicants. The considerations for PRH income limits are different and are not related to either the income or affordability of existing PRH tenants.
Before the rent adjustment mechanism formally came into effect, the HA reduced the PRH rent across the board by 11.6% (note 1) in August 2007 in order to provide a lower starting point. Given the increase in the income index by 4.68%, 16.24% and 19.27% in 2010, 2012 and 2014 respectively, the HA increased PRH rent by 4.68%, 10% and 10% respectively in accordance with the statutory mechanism.
On a cumulative basis, the overall household income of PRH tenants has increased by 45.3% (note 2) from 2007 to 2013, while PRH rent has only increased by 26.5%. Income increase has far exceeded rent increase. Between 2007 and end-2013, the Composite CPI increased by 22.7%, while CPI (A) increased by 22.8%. Hence, overall speaking, there was visible real growth in the income of PRH tenants during the said period. As for the wage index compiled by the Census & Statistics Department, it only covers selected industries in Hong Kong without relevant figures for individual household types (e.g. PRH tenants). Nominal wage increased by 25.8% between December 2007 and December 2013, and the real wage (after deducting the CPI (A)) increased by 2.5% during the same period.
Experience shows that using the actual income level of PRH tenants directly as the basis for rent adjustment can give due regard to the affordability of tenants. The HA reviewed the operation of the existing rent review mechanism during the 2014 rent review and made a crude comparison of the ratio of average PRH rent to average PRH household income. The relevant ratio in 2007 was 9.97%; and would decrease to 9.39% after the rent increase in accordance with the 2014 review. This means that the proportion of income used by tenants to pay rent is actually decreasing. Furthermore, under the existing law, the current mechanism caps the extent of rent increase to 10% for every two years, and there is no limit on the extent of rent decrease. With the cap in rent increase, the rent affordability of PRH tenants will only improve in the long term. It will not worsen.
The 2016 rent review is close to completion and will be discussed at the meeting of the HA's Subsidised Housing Committee in early July. We will also brief the LegCo Panel on Housing on the review outcome at its meeting this month (June 29). As the HA has yet to consider the 2016 rent review, it is premature to tell whether any additional relief measures will be offered to tenants. We trust the HA will base on the income index computed by the Census & Statistics Department and carefully consider all relevant factors, including the growth in tenants' income and their affordability in paying rent, overall economic situation and the HA's financial position, etc., before making the final decision.
Notes:
1. As the rent of the majority of PRH stock and newly-completed PRH units was last reviewed in 1997, the HA adjusted the PRH rent according to the extent of the changes in the income index between 1997 and 2006, i.e. an across-the-board rent reduction of 11.6%.
2. This figure is obtained by comparing the income index of 2007 (set at 100) and the income index of 2013. In accordance with the methodology of the current rent adjustment mechanism, the household distribution of 2007 was used in computing the income index of 2013.
Ends/Wednesday, June 22, 2016
Issued at HKT 14:38
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