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The following is the speech by the Secretary for Housing, Planning and Lands, Mr Michael Suen, in moving the Second Reading of the Housing (Amendment) Bill 2007 at the Legislative Council meeting today (January 31):
Madam President,
I move the Second Reading of the Housing (Amendment) Bill 2007.
Before introducing the Bill, I would firstly like to reaffirm Government¡¯s long-standing policy objective on public housing, which has been to provide subsidised public rental housing (PRH) to low-income families who are unable to afford private rental housing, and to maintain the average waiting time for PRH at around three years. It has also been the established policy of the Housing Authority (HA) to set the PRH rent within the affordability of the tenants. These policy objectives may look simple, but putting these into practice calls for huge public subsidies, including Government¡¯s enormous capital expenditure on land formation and construction of public housing. The day-to-day management and maintenance of about 700 000 PRH units throughout the territory also incurs considerable costs.
Some 30% of Hong Kong¡¯s population are living in PRH. How PRH rent is to be determined and adjusted rationally such that it is affordable while bearing in mind the sustainability of the PRH programme has been an area of major concern to the community. The controversy of the matter at issue has been further aggravated by the existing median rent-to-income ratio (MRIR) provision of the Housing Ordinance.
Section 16(1A) of the existing Housing Ordinance provides that the MRIR of all the PRH tenants shall not exceed 10% after any determination of variation of rent by HA for any particular estate. For those senior Members of this Council, they would no doubt recall that Section 16(1A) was introduced by way of a Private Members¡¯ Bill in June 1997 before Hong Kong¡¯s return to the Motherland. It was passed in great haste. The 10% MRIR cap was introduced merely as an expedient measure to restrict HA¡¯s powers to increase rent. To adopt the MRIR as a statutory mechanism for rent adjustment has serious drawbacks. The operation of the provision over the past 10 years has clearly brought to light the following problems-
(a) Although the Court of Final Appeal ruled that the 10% MRIR cap applies only to HA¡¯s decisions to increase rent, but not to reduce rent, the statutory cap effectively means that, regardless of the underlying and extraneous factors pushing up the MRIR, PRH rents can only go down but not go up once the MRIR has exceeded 10%. A domestic rent regime which only allows for rent reduction but not increase is neither rational nor sustainable in the long run.
(b) The continuing rise in the MRIR has been brought about by a host of extraneous factors, which include an increasing number of PRH tenants receiving Comprehensive Social Security Assistance, a rising proportion of elderly or small households who usually have lower income, the exit of high income tenants, improvement in the space allocation standard and replacement of old estates by new ones. To determine the extent of rent adjustments indiscriminately on the basis of the movement in the MRIR may produce results that are highly distorted and not practicable. This was clearly demonstrated in the rent review exercise ordered by the High Court in 2004, which suggested that a substantial rent reduction of 38% would be required to bring the then MRIR of 14.2% to below 10%. Is such an astonishing rate of rent reduction reasonable? And is it affordable to the community?
(c) The existing legislation, which only imposes restrictions on rent increases, falls short of providing an objective basis for the HA to consider when a rent reduction is warranted. Nor does it help define the extent of such a reduction.
The HA has therefore conducted a comprehensive review of its domestic rent policy and an extensive public consultation. The objective is to identify a more flexible and appropriate rent adjustment mechanism that matches more closely tenants¡¯ affordability and helps promote the long-term sustainability of the PRH programme. One of the key recommendations of the review is to develop an income-based rent adjustment mechanism to determine the extent of rent adjustments according to changes in PRH tenants¡¯ household income. Only when the overall household income of PRH tenants shows an increase will it be possible for the HA to increase the rent at the same rate. On the contrary, if there is a decrease in PRH tenants¡¯ overall household income, the HA will have to adjust the PRH rent downwards at the same rate accordingly. To track the income movement of PRH tenants, the HA will collect more accurately income data from PRH tenants through a declaration system. The Census and Statistics Department has agreed to compile an income index for PRH tenants on behalf of the HA to enhance the credibility of the computation process.
To put in place this new income-based rent adjustment mechanism effectively, we need to amend the Housing Ordinance to repeal the provisions on the MRIR cap. Although the new mechanism could be implemented through administrative means, we are keenly aware of PRH tenants¡¯ wish for statutory control over the HA¡¯s power to adjust rent under the new mechanism. Therefore, we have added new provisions to the Bill to govern rigorously the detailed operation of the new rent adjustment mechanism. These include, amongst others, obliging the HA to compile the income index for PRH tenants in accordance with a set of parameters.
Let me now make a brief introduction of the key elements of the Bill-
(a) To repeal the relevant MRIR provisions under Sections 16(1A), (1B), (1C), (1D) and (1E) of the existing Housing Ordinance;
(b) To add new provisions to provide for a two-year rent review cycle with the first review to take place two years after the commencement of the Amendment Ordinance;
(c) To specify the respective 12 months to be covered by the two periods (i.e. the first and second period) in each rent review;
(d) To require the HA to vary PRH rent according to the rate of increase or decrease in the income index between the first and second period in a rent review;
(e) To empower the HA to compile an income index which reflects the mean household income of PRH tenants, with the distribution of the household size of PRH tenants in the first period as the basis for calculation. This would ensure that the ¡°pure income change¡± of PRH tenants in a rent review cycle is accurately assessed without being subject to the influence of household size distribution;
(f) To empower the HA to entrust the compilation of the income index to a public body or tertiary institution;
(g) To allow the HA to refrain from varying PRH rent if the amount of the variation required after a rent review is, in its opinion, insignificant; but to require the HA to take into account that income change in the next review;
(h) To empower the HA to round down the amount of the rent variation to the nearest dollar; and
(i) To exempt the application of the new rent adjustment mechanism to tenants paying additional rent or eligible for the HA¡¯s Rent Assistance Scheme.
The Bill provides a transparent and solid legal framework within which the HA can review and adjust PRH rent in accordance with the law. On the other hand, PRH tenants are fully protected by law against any rent adjustment that is incommensurate with the changes in their household income or their affordability.
Moreover, the HA has agreed that in implementing the rent adjustment mechanism which provides for both upward and downward adjustments, the existing PRH rent should be adjusted to a level that is considered appropriate and acceptable to the public so as to provide a fair and rational starting point for the new mechanism. As the rent of the majority of the existing PRH stock and newly-completed flats was last reviewed in 1997, the HA has agreed to adjust the existing PRH rent according to the extent of changes in the income index since 1997, which means an across-the-board rent reduction of 11.6%. The same rate of reduction will also be applied to newly-completed estates. The HA would effect the proposed rent reduction upon passage of the Bill on its third reading by the Legislative Council. As regards the request from certain quarters that short-term rent relief measures should be introduced prior to the completion of the legislative amendments which are necessary for implementation of the new mechanism, the HA has responded positively to these by granting all PRH tenants, with the exception of those paying additional rent, rent remission for the month of February 2007.
The development of a domestic rent policy that is affordable to both PRH tenants and the community as a whole is indispensable in our quest for a sustainable public housing programme so that it could continue to help those low-income families with housing needs. The mechanism suggested by the HA provides for both upward and downward rent adjustments according to changes in PRH tenants¡¯ household income. Not only will it reflect more closely the affordability of PRH tenants and provide greater protection for them, but also allow the HA to adjust its domestic rent in good time based on the objective criteria enshrined in the statute, thereby minimizing unnecessary contention in society over the extent of rent adjustments. It is my firm believe that the new rent adjustment mechanism and Government¡¯s proposed amendments to the Housing Ordinance has already fully taken into account and balanced the interests of the different quarters in the community. As a matter of fact, the proposed rent adjustment mechanism has been well-received by the general public since it was first proposed. According to an opinion survey we conducted in December 2006, 77% of the respondents supported the mechanism. As regards the proposed rent reduction of 11.6%, 80% of the respondents considered that the extent of reduction was reasonable or even on the high side. I sincerely hope that Members will support the passage of the Bill to facilitate early implementation of the new rent adjustment mechanism and a rent reduction of 11.6%.
Thank you, Madam President.
End
31 January 2007 (Wednesday)
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