At the Chairmans invitation, Mr LEUNG Yiu-chung highlighted that his Bill sought to amend the Housing Ordinance (Cap 283) to provide a triennial rent review instead of the current biennial rent review for public rental housing (PRH) estates managed by the Housing Authority (HA); and to specify that rent increases for PRHs should not exceed the increase in inflation since the preceding rent review.

2. Commenting on the Administrations reasons for objecting to his Bill as set out in its information note, Mr LEUNG Yiu-chung elaborated on the rationale behind his proposals. He considered that the two median rent-to-income ratios (MRIR) of 15% and 18.5% currently adopted by the Housing Authority (HA) had far exceeded the affordability of tenants in PRHs. In the past five years, the growth in real wages was negligible while the increase in rents was often higher than that of inflation. His Bill sought to introduce a cap on rent increases below the inflation level in order to alleviate the pressure on tenants of spending a high proportion of their household income on rent. Similarly, the proposal for a triennial rent review would allow tenants a longer period of time to adjust to rent increases. This was also consistent with the HAs present rent review period for commercial tenants.

3. On the financial impact of his Bill which, according to the Administration, would result in a deficit of $0.9 billion in 1996-97 and $1.8 billion in 1997-98 in the PRH account, Mr LEUNG Yiu-chung considered that the trend of a growing deficit was attributable to mismanagement of resources on the part of the HA and the Administration. In his opinion, rents had been unfairly increased to cover operating costs which had risen due to ineffective monitoring of PRHs during construction and other oversights which had substantially added to the maintenance costs. Likewise, it was unfair for PRH tenants to have to share the HAs responsibility for paying yields to the central Government annually.

4. Mr LEUNG Yiu-chung held the view that the primary objective of PRH was to subsidise tenants in the low-income groups. Nevertheless, recent statistics on household expenditures spent on rents for low income tenants in PRHs indicated that at least 30,000 PRH tenants were paying about 23.5% of their household income on rent. This exceeded the 15% and 18.5% MRIR currently adopted by the HA and was far from satisfactory. He also opined that the Rent Assistance Scheme was not providing adequate assistance for the needy tenants. Mr LEUNG emphasised that his proposal had only set a ceiling on rent increases and the HA was still at liberty to set a range of rents below the ceiling to cater for different groups of PRH tenants.

II. Meeting with the Administration

(Paper Nos. CB(1)1502/96-97(02) and 1513/96-97(02))

5. The Deputy Secretary for Housing (DS for H) said that the Administration was still studying the Bill and would provide a more detailed written response to the points raised therein. Initially, he questioned the justification of the following proposals:

using inflation instead of tenants household income as the sole yardstick for rent increases;
excluding other factors such as rates, location of estates and maintenance costs in determining rent increases for individual estates; and
spending tax payers money to subsidise all PRH households regardless of their actual needs.

He reiterated the Administrations objection to the Bill both in principle and in practice.

Affordability of PRH tenants

6. Mr LEUNG Yiu-chung pointed out that the Administration had not explained clearly the basis on which the two MRIRs were set. His proposal was simple and easy to administer as affordability was not arbitrarily determined but pegged to an objective criterion. Referring to the household income factor, he pointed out that the HA had already included this element in setting the initial rents for PRHs.

7. The Administration advanced the view that capping rent increases at inflation would undermine the principle of affordability because inflation did not necessarily reflect tenants affordability as the growth in household income might be higher or lower than inflation. They pointed out that the MRIRs had been adopted and administered smoothly by the Administration for many years. In assessing PRH tenants income, reference was made to data available from other sources including the income of applicants on PRH waiting list. On average, the current MRIR of PRH tenants was about 9% which was well below the affordability ratios of 15% and 18.5% set by the HA. In overseas countries, the average MRIR was reported to be about 20%. Members were informed that the rent policy including the two MRIRs had been carefully reviewed by a special committee of the HA on two occasions. In this regard, the Administration undertook to provide further information on the two ratios after the meeting.

HB

Other determinants for rent increases

8. The Deputy Director of Housing (Management) explained that rent increases had to take into account a number of factors. He pointed out that current rents were already so low that they could not even cover operating costs. In recent years, operating costs had risen due to improvement projects such as enhanced security systems and environmental improvements. Mr LEUNG Yiu-chung reiterated that in practice, the Administration was still at liberty to take into account other relevant factors as his Bill merely sought to introduce a maximum limit.

Justifications for subsidising all PRH households

9. Responding to the Administrations view that it would be unfair if taxpayers money were to be used in subsidising all PRH tenants regardless of their actual needs, Mr LEUNG Yiu-chung held the view that PRH was a form of subsidised housing and there should not be any hesitation on the part of the HA to provide public housing since it had a projected profit of over $56 billion by the year 2001. In this connection, the Administration reiterated that it was the HAs responsibility to ensure that resources in the provision of public housing were appropriately allocated and utilised on the basis of affordability.

Mechanism for control

10. Referring to some members reservations on how performance of the HA would be monitored in effecting the rent-setting proposals if the Bill was passed, Mr LEUNG Yiu-chung replied that inflation rates in the past ten years were within reasonable limits. Even if there were sharp rises in inflation, the Administration should exercise prudence in determining rent increases and should not simply seek to match rent increases with inflation as the latter was meant to be the cap but not the norm. In the long run, he considered that effective monitoring could best be achieved through representation of elected members in the HA.

Rent Assistance Scheme

11. Miss CHAN Yuen-han said that contrary to the information provided by the Administration, she knew of many PRH tenants who were spending over 20% of their household income on rent. She considered the conditions of the Rent Assistance Scheme too harsh as the requirement for aided tenants to move to cheaper rental units if their financial situation did not improve implied a strong sense of penalty. DD of H (Management) explained that so far, there had only been one case in which an aided family was required to move out, not for financial reasons, but due to a reduction in family members. DS for H advised that the present arrangements for the Scheme could be looked into but this should be independent from considerations of the Bill. Miss CHAN Yuen-han said that she was not in support of the Administrations present policy on rent increase and considered the Bill a better choice if no other alternative was offered by the Administration.

Legal implications

12. Since the Bill proposed to cap rent increases which was an important source of the HAs revenue by the increase in inflation since the preceding rent review, DD of H (Management) commented that this might be incompatible with section 4(4) of the Housing Ordinance which stated that "the policy of the Authority shall be directed to ensuring that the revenue accruing to it from its estates shall be sufficient to meet its recurrent expenditure on its estates". In reply to the Chairman, the Assistant Legal Adviser (1) advised that in the event of two conflicting clauses, the law must clearly spell out which was the overriding clause. The Chairman remarked that he did not recall the HA had so far addressed the problem of deficit in the context of the aforesaid statutory requirement.

Triennial Review

13. Mr Bruce LIU said that PRH tenants might have different views on the proposed triennial review. Reviewing rents triennally would mean larger increases in each revision exercise although the differences might become insignificant after a long period of time. The Administration also pointed out that PRH tenants were used to biennial rent reviews and there were no compelling reasons for changing the current practice.

14. The meeting ended at 2:15 p.m.

Legislative Council Secretariat
4 June 1997

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