2. At the Chairmans invitation, Mr Bruce LIU briefed members on his Bill which sought to amend the Housing Ordinance (Cap 283) to require the Legislative Councils approval if the rent increases of public rental housing (PRH) determined by the Housing Authority (HA) were higher than the rate of inflation.

3. While agreeing in principle that rent increases in public housing estates were determined by a combination of factors on top of inflation and that there might be justifications for the HA to increase rents, Mr Bruce LIU stressed the need to build in a safeguard against rent increases exceeding the affordability of tenants in PRH. He said that in recent years, the growth in real wages was negligible while the increase in rents was often higher than inflation. The proposed requirement of seeking the Legislative Councils approval for rent increases above the rate of inflation would provide the proper checks and balances on the HA. He emphasised that the Bill would allow the HA to raise rents above the inflation level where circumstances so warranted and would therefore provide greater flexibility than simply capping rent increases at the inflation level.

III. Meeting with the Administration

(Paper Nos. CB(1)1502/96-97(02), 1513/96-97(02) and 1593/96-97(01))

Affordability ratios of 15% and 18.5%

4. The Deputy Secretary for Housing (DS for H) reiterated that the existing rent policy was based on the principle of affordability. The Administration would also provide the Bills Committee with further information on the affordability ratios of 15% and 18.5% in due course.	HB

5. In explaining the background to the median rent-to-income ratio (MRIR) of 15% adopted in 1986, the Chief Assistant Secretary (Housing Strategy) (CAS(HS)) referred members to the following factors:-

the actual proportion of household expenditures being spent on housing by comparable income groups in private rented accommodation of about 30%;
the average MRIR reported in overseas countries of about 20%; and
the actual MRIRs of 13% and 6% for new and old PRH estates in mid 1980s.

6. CAS(HS) informed the meeting that most applicants for PRH estates, including those in the lower income group, had indicated willingness to pay higher rents for larger flats. As a result, the new larger Harmony block was designed. The new MRIR of 18.5% was adopted in 1991 for a higher space allocation standard of 7m² per person internal floor area (IFA) in addition to the MRIR of 15% set for the minimum space allocation standard of 5.5m² per person IFA. The Administration considered that these two MRIRs were both reasonable and broadly acceptable to the community.

7. Mr Bruce LIU remarked that to some extent, the two affordability ratios were arbitrarily determined. In his opinion, the two MRIRs were on the high side and should more appropriately be revised to 12% and 15%. After deliberations, the Chairman requested the Administration to compile a table setting out the increases in rents for different types of PRH estates over the past 20 years or so, together with the increases in household income, real wage increases and inflation rates during the same period. The Administration agreed to try their best to provide the information.

8. Some members were concerned about the impact of inflation on future rent increases. In response, DS for H pointed out that the Administrations primary consideration was whether rent increases should be solely linked to inflation without due regard to other factors such as household income, estate values and operating costs. DD of H supplemented that inflation did not necessarily reflect tenants affordability as the growth in household income might be higher or lower than inflation. The Administration was concerned about the computation of the rate of inflation which had not been amply reflected in the Bill. In reply, Mr Bruce LIU said that inflation rates would be calculated on the basis of the Consumer Price Index A (CPIA), reference to which was also found in the Pensions Ordinance.

9. Some members cautioned that it was inappropriate for the HA to compare the MRIR of private housing tenants, which was unduly high, with that of PRH tenants and come to the conclusion that housing assistance for PRH tenants was adequate. Miss CHAN Yuen-han referred to the findings of her recent survey on housing which indicated that the majority of PRH tenants had difficulties in affording their own flat.

Affordability ratio in overseas countries

10. Referring to the international MRIR of 20%, CAS(HS) clarified that the figure was the ratio found in third world countries in mid 1980s. Some members doubted the appropriateness of strict comparison in view of intrinsic differences between the countries. In this regard, Miss CHAN Yuen-han suggested that the Administration should obtain more updated information on the MRIR of developing countries which was reported to be about 20% in mid 1980s. Some members also urged the Administration to review the current MRIRs. In reply, DS for H advised that information on overseas practices had only been used for reference purposes. The Administration would consider the overall rent policy and its implementation including the provision of rent assistance to needy tenants in the context of the Long Term Housing Strategy Review.

Legislative control over PRH rents

11. The Administration considered that the Bill, if passed, would empower the legislature to determine rent increases of the HA which would amount to a direct challenge to the executive-led Government and lead to confusion over the role of the executive and the legislature. Nevertheless, Mr Bruce LIU did not agree that participation of the legislature as proposed by the Bill would constitute a challenge to the executive-led Administration. As there was no elected Government in Hong Kong, he opined that LegCo, which comprised elected members, should assume a greater monitoring role over the decision of the HA.

Legal implications

12. DD of H opined that the Bill, which would in effect impose restriction on HAs revenue from rents, might be in conflict with the intent of section 4(4) of the Housing Ordinance (Cap 283) which stipulated 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". Some members, however, held the view that as long as the HA had made reasonable efforts to implement a policy in line with section 4(4) of the Ordinance, it would not be held liable for mismanagement. A member said that the HA would have to tackle similar difficulties in reconciling the principle of affordability with the said section 4(4) when inflation was higher than economic growth and the growth in household income. The Administration nevertheless stressed the need to address this possible legal anomaly.

13. In this connection, the Legal Adviser (Housing Department) LA(HD) also questioned the powers of the HA to make subsidiary legislation as proposed under the Bill and whether rent determination was within the meaning of subsidiary legislation for the purpose of the Interpretation and General Clauses Ordinance (Cap 1). To fully examine legal issues raised by the Bill, LA(HD) would prepare a list of questions/concerns on the compatibility or otherwise of the Bill with existing provisions in the Housing Ordinance.

III.Any other business

14. Due to unforeseeable commitments of representatives of the Administration, members agreed to re-schedule the next meeting to 26 May 1997 at 4:30 pm.

15. The meeting ended at 12:30 p.m.

Legislative Council Secretariat

20 June 1997

Last Updated on 22 May, 1997