Provisional LegCo Panel on Housing

Housing (Amendment) Ordinance

Purpose

This note informs Members of the progress on the assessment by the Housing Department (HD) and the Housing Authority (HA) of the implemention of the Housing (Amendment) Ordinance 1997 (the Amendment Ordinance).

Background

2. The Amendment Ordinance 1997 was passed by the former Legislative Council on 28 June. The Amendment Ordinance provides that -

  1. variations of rent by the HA can be implemented no more frequently than once every three years;
  2. no rent increase determined by the HA shall cause the overall median rent to income ratio (MRIR) for the HA's public rental flats to exceed 10%; and
  3. the Amendment Ordinance shall come into effect on a date to be appointed by the Secretary for Housing.

3. The Executive Council at its meeting on 8 July advised that the commencement of the Housing (Amendment) Ordinance 1997 should be withheld and that an assessment of its implications should be completed by the end of September.

Housing Authority's report on the full implications of the Amendment Ordinance

4. The Secretary for Housing asked the Director of Housing, in co-ordination with the HA, to conduct a detailed assessment of the full implications of the Amendment Ordinance, including the financial, operational and legal implications, and to submit their assessment and recommendations to him before 30 September. The HD/HA submitted their assessment report on 25 September to the Housing Bureau for consideration. A copy of the report is at Annex.

Problems arising from the implementation of the Amendment Ordinance

5. The problems arising from the implementation of the Amendment Ordinance highlighted in the report are summarised below -

  1. the Amendment Ordinance will lead to serious operational difficulties for the HA -

    1. it will prevent the HA from varying rents for a fixed period (three years) since the last rent review exercise, and so hamper flexibility to vary rents for individual public rental households according to their financial circumstances. This will make it impossible to implement effectively the rental policies applying to better-off tenants1, and tenants in temporary financial difficulties paying reduced rents under the Rent Assistance Scheme2;
    2. it will require the incomes of households residing in cottage areas and interim housing to be included in the calculation of the MRIR. This falls outside the original intention of the Amendment Ordinance, which is to ensure public housing rents are affordable to families living in normal public rental housing;
    3. it may require a legally definitive determination of the overall MRIR to be made. The Amendment Ordinance could oblige the HA to conduct comprehensive surveys of incomes of all households living in public rental estates at least twice each year and oblige tenants to provide accurate details of their incomes, as opposed to the HA's present practice of determining MRIR by means of sample surveys. This will arouse resentment among tenants (and incur administrative costs as high as $32 million per survey);

  2. the Amendment Ordinance will have significant financial implications for the HA -

    1. the statutory 10% MRIR ceiling will lead to a loss of $1.7 billion by 2005-06, and
    2. a change from the current two-year rent review cycle to a three-year rent review cycle will result in a loss of revenue in the region of $5.2 billion by 2005-06,making a total revenue loss of $6.9 billion over the same period3.

  3. the Amendment Ordinance will give rise to legal ambiguities -

    1. the financial impact of the Amendment Ordinance is inconsistent with the spirit of section 4(4) of the Housing Ordinance, which requires the HA to direct its policy to ensure that the revenue from its estates is sufficient to meet recurrent expenditure;
    2. the failure of the Amendment Ordinance to specify clearly how the determination of MRIR is to be made could, in addition to the operational difficulties described above, expose the HA to legal challenges which will adversely affect its normal operations; and

  4. the triennial rent review arrangement will mean a higher cumulative rate of increase for each rent review exercise, making it more difficult for public housing tenants to adjust to new rental levels and creating a worse perception of the magnitude of adjustment. As noted above, the change to a triennial rent review will also bring about a more substantial cumulative loss of rental income for the HA of about $5.2 billion by 2005-06.

The Report's recommendations

6. The report suggests that three options are open for consideration in dealing with the Amendment Ordinance -

  1. to repeal the Amendment Ordinance in its entirety;
  2. to bring the Amendment Ordinance immediately into operation in its present form; and
  3. to bring the Amendment Ordinance into operation, subject to it being further amended to minimise operational and financial difficulties and legal ambiguities.

7. The report rules out option (a) as a viable alternative in recognition of the cardinal principle in our administrative system that all laws passed by the legislature should be brought into effect unless justified by overriding circumstances. The report considers that option (b) should not be implemented without addressing the inherent operational, financial and legal difficulties. On balance, the report supports option (c) which would respect the legislative spirit and at the same time minimise the adverse impact of the Amendment Ordinance on the HA's operations and financial situation.

8. The report recommends that the Amendment Ordinance be put into operation as soon as practicable, subject to the following amendments -

  1. to provide for a clear definition of the MRIR and a practical methodology of its assessment such that the HA may rely on the MRIR figures computed by way of the sampling method currently adopted by the Housing Department;
  2. to replace the three-year rent review cycle prescribed by the Amendment Ordinance by the well-established and accepted two-year rent review cycle but to exclude from this restriction tenants who are required to pay additional/market rent and beneficiaries of the Rent Assistance Scheme; and
  3. to exclude cottage areas and interim housing from its application.

Present position

9. The Government is carefully studying the report with a view to reaching a decision on the way forward as soon as possible.

Housing Bureau
September 1997

Last Updated on 24 October 1997