Bong Miquiabas looks into the rise and fall of rent control in Hong Kong.

At first blush, rent control sounds exquisite and perfect, like dong lai cha on a steamy summer day. Haven’t we all at some point been cash-strapped renters living pay check to pay check in dread of the next rent spike? But, in practice, rent control – once demanded by everyday Hongkongers and now defunct as policy – is a complicated issue.

Rent control is defined as the limiting of the amount rent may be increased in a tenancy agreement (see sidebar: What is rent control?), and was officially abolished in Hong Kong in 1998. But yet it’s still thriving in various forms around the globe, in particular New York City (see sidebar: New York, New York).

In Hong Kong, rent control took effect from the end of World War II onwards, when waves of Mainland immigrants of modest socioeconomic means flooded the city and came to dominate our demographic makeup. While the number of apartments that participated in the schemes steadily diminished over the years, the whole thing began with a burst of public enthusiasm.

According to Hong Kong University professor Lam Wai-man’s Understanding the Political Culture of Hong Kong, Alexander Grantham, governor from 1947 to 1957, wrote that the campaign for rent control was the only issue during his term that “created heat in Legislative Council”, and caused a “storm of protest amongst the populace at large.”

Led by hundreds of residents’ associations, the campaign protested the government’s plan to decontrol rents for pre-war premises. Many feared rents would soar in light of the acute shortage of accommodation. The authorities capitulated and permitted rent controls on premises built before the war. However, newly constructed buildings and reinstated or converted buildings had no price controls.

Over time, housing policy continued to stand apart from Hong Kong’s otherwise unabashed love of laissez faire economics. Public rental housing literally emerged from the ashes of the tragic Shek Kip Mei fires of 1953, when tens of thousands of squatters were made homeless. Subsidised home ownership flats were introduced in 1978. Taken together, the two schemes today account for nearly half of Hongkongers’ housing arrangements (see chart).

Nancy Hung of the Rating and Valuation Department, government’s property assessment agency, explains the guiding principle driving private tenancies, which operate outside the government’s public schemes: “[Private] rental agreements now are contracts governed by market mechanisms. They are freely negotiable and subject to common law application. If both parties don’t agree, then government steps in to help resolve disputes.”

Professor Li Ling-hin of HKU’s Real Estate and Construction department says rent controls are the main tool for a developing economy, as Hong Kong was in the 1950s, but, he warns, there are always challenges, “such as distorting the true demand. A major problem is it discourages people from being a landlord.”
Li adds that rent control meant there was no economic incentive for landlords to keep living conditions homey. “In the old days, some landlords would keep their properties dilapidated. It affected the supply side, and the general intention of investors to purchase properties for rental investment.”

Another significant policy development was the abolition of security of tenure by way of the Landlord and Tenant (Consolidation) Ordinance of 2004. Security of tenure originally kicked in at the expiration of a lease agreement. Put simply, a tenant had the right to remain in occupation of a premise at the prevailing market rate at the end of the lease term. The idea was to protect tenants from price gouging if they sought to extend a lease. But, not surprisingly, landlords complained that security of tenure killed profits. Government came around to the landlords’ perspective when it needed to ignite the economy after SARS.

John Tang (not his real name) knows firsthand about security of tenure. Tang was a landlord in 2004 when he encountered a tenant who wouldn’t vacate his flat at Sorrento in Kowloon, then a new property development near Elements Mall. “The rent was low when he signed his lease during SARS,” Tang explains. “But when his lease ended, I wanted to raise the rent because the market was coming back. The guy refused to pay the new amount.”

Under security of tenure, Tang couldn’t evict the tenant. Eventually, the two parties agreed to a marginally higher rent for what proved to be the final, one year lease, despite property rates nearly doubling between 2002 and 2004. “I was so angry that my son wanted to set fire to the guy’s flat,” Tang recalls with a chuckle.

With security of tenure and rent controls no longer in place, landlords are once again calling the shots in residential lease agreements, to the consternation of market-dependent tenants who don’t qualify for public housing. And new property choices are often built over far-flung reclaimed land.

In fact, it stands to reason that rent control won’t fly in Hong Kong now that public schemes fill the need for those who need price ceilings most. Local property agents tell TOHK that the chronic scarcity of desirable land reliably drives up housing costs. And since so many people would be ill-positioned to afford rents in a completely free market, our long-running subsidisation scheme continues to be the most viable public policy.

Nor do Hongkongers seem to be clamouring for rent control. For every hard-up renter there is an eager landlord or home owner among us. The property sector reigns supreme in our economic hierarchy. In 2002, the last full down year since the current economic turmoil, the sector with the construction industry accounted for a whopping 14 per cent of GDP.

As Michael Yuen, former secretary for Housing, Planning and Lands once observed, “Buying properties has been a principal channel for [Hong Kong] people to garner in their wealth.” Therefore, don’t expect government to suddenly develop the political will to take on the sector, much less its well-established property developers. Yet given the current economic climate, in which rental rates have plummeted 20 per cent from this time last year, tenants now enjoy greater leverage. Maybe we don’t need rent control after all.

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