LegCo Paper No. CB(1)1911/96-97
(These minutes have been seen by the
Administration and cleared with the Chairman)
Ref : CB1/BC/10/96/2

Bills Committee on Housing (Amendment) (No.3) Bill 1996 and Housing (Amendment) Bill 1997

Minutes of meeting held on
Monday, 26 May 1997, at 4:30 pm in
Conference Room B of
the Legislative Council Building

Members present :

    Hon LEE Wing-tat (Chairman)
    Hon Edward S T HO, OBE, JP
    Hon CHAN Kam-lam
    Hon CHAN Yuen-han
    Dr Hon LAW Cheung-kwok
    Hon LEUNG Yiu-chung
    Hon Bruce LIU Sing-lee

Member absent :

    Hon Ronald ARCULLI, OBE, JP

Public officers attending :

Mr Andrew R Wells
Deputy Secretary for Housing
Mr Marco WU
Deputy Director of Housing (Management)
Mr Parrish NG
Principal Assistant Secretary (Housing)(2)
Miss Sandy CHAN
Principal Assistant Secretary (Consultation)
Miss L K LAM
Chief Assistant Secretary (Housing Strategy)
Mr Simon P S LEE
Legal Adviser (Housing Department)

Clerk in attendance :

Miss Polly YEUNG
Chief Assistant Secretary (1)3

Staff in attendance :

Ms Bernice WONG
Assistant Legal Adviser 1
Mrs Queenie YU
Senior Assistant Secretary (1)8

I. Meeting with the Administration

(Paper Nos. CB(1)1655/96-97, 1672/96-97(01), (03) and information tabled at the meeting subsequently issued vide 1713/96-97(01) to (06))

Amendments to Housing (Amendment) (No.3) Bill 1996 proposed by members

The Chairman presented his brief on proposed amendments to the Housing (Amendment)(No.3) Bill 1996 which was tabled at the meeting. The proposed Committee stage amendments (CSAs) sought to further improve protection for public rental housing (PRH) tenants by capping the ceiling for rent increases at the annual inflation rate less 2%, or at a median rent-to-income ratio (MRIR) of 10%, whichever was the less. He also highlighted the following reasons for making the amendments:

(a) the Bill had not provided any safeguards to prevent the HA from raising PRH rents close to its ceiling at times of high inflation and this would result in a vicious cycle aggravating inflation;

(b) the current MRIR of 15% and 18.5% used to set rents for PRH estates were too high; and

(c) PRH estates were not effectively managed and the HA should be held responsible for the growing deficit in its domestic account in recent years.

2. Mr CHAN Kam-lam informed members that he would also propose further CSAs to the Bill which sought to set the current MRIR ceiling for the purpose of rent determination to about 10% subject to review and revision when circumstances so warranted. In addition, he proposed that rent increases should be reviewed biennially instead of triennally.

3. Mr Bruce LIU informed the meeting that in view of further CSAs proposed by members, he had decided not to proceed with the resumption of Second Reading dabate of his Housing (Amendment) Bill 1997 but to propose amendments to the Housing (Amendment) (No.3) Bill 1996 instead.

4. Mr LEUNG Yiu-chung briefed members on his further CSAs proposed to clause 2 of the Bill which were tabled at the meeting. He too supported other members’ proposal to use the MRIR ceiling as an alternative restriction on rent increases.

5. The four members undertook to provide details of their Committee stage amendments and relevant explanatory notes to the Administration for written comments in due course.

Implications of the proposed amendments

Median rent-to-income ratio (MRIR)

6. At the Chairman’s invitation for initial comments, the Deputy Secretary for Housing (DS for H) said that the proposed amendments would disregard the fundamental principle of affordability and the primary objective of providing subsidised housing to the needy. He remarked that although half of the population in Hong Kong were housed in PRH, the majority of these tenants were not poor. The current rent policy had worked well in ensuring that resources in the provision of public housing were appropriately allocated and utilised on the basis of affordability.

7. The Chief Assistant Secretary (Housing Strategy) CAS(HS) briefed members on the origin and rationale of adopting the current MRIR ceilings of 15% and 18.5%. She emphasised that in setting rents, the Administration had primarily considered tenants’ ability to pay and the relative values of different estates. Whilst affordability was by no means easy to measure as incomes and priorities on expenditures varied, the most objective approach available was to make reference to the actual proportion of household expenditures spent on housing by comparable income groups in private rented accommodation. In adopting the MRIRs of 15% and 18.5% in 1986 and 1991 respectively, the Administration had made reference to the findings of the nearest five-yearly Household Expenditure Survey (HES) conducted by the Census and Statistics Department.

8. CAS(HS) explained that affordability was a relative concept and the proposed MRIR ceiling of 10% proposed by members was quite arbitrary. It was important for the Administration to consider the affordability of the majority of tenants in PRH on the basis of objective criteria and the Administration had accordingly adopted the MRIR as a benchmark since the majority of household income fell just above or below this mid point. In practice, policies were in place to deal with better-off and needy tenants. Members however disagreed that the Administration’s rationale for adopting MRIR was objective. They saw no anomaly in improving the current MRIRs for the majority of PRH tenants whilst maintaining existing rent arrangements in providing additional assistance to needy tenants.

9. DS for H did not concur with members’ view that the current MRIR ceilings of 15% and 18.5% were too high. Despite different circumstances between private and public housing locally and overseas, he considered that the MRIR of 27% for private housing tenants in Hong Kong and the internationally prevalent ratio of 20% should be used as practical references and the current MRIRs were still relatively low. Contrary to the information reported by the Chairman that the public had objected to raising rents to the current MRIR ceilings, DS for H remarked that written submissions on the Long Term Housing Strategy Review received so far had clearly indicated support for the rent policy currently adopted by the Administration. He reiterated that the Administration would review the current rent policy including the Rent Assistance Scheme in finalising the Long Term Housing Strategy after public consultation. Members did not share this view and maintained that very often, tenants in new PRH estates were spending over 20% of their household income on rent.

Real wages and nominal wages

10. Addressing the question of whether real wages should be a more appropriate indicator of affordability than inflation, the Chairman said that no reliable information on real wages of PRH tenants was available. The real wage index for all employees in Hong Kong or for those engaged in the manufacturing industry might not accurately represent the real income of tenants in PRH. In this connection, DS for H referred members to the information in the "summary of domestic rent reviews" provided by the Administration and pointed out that the average increase in rents was lower than the nominal wage index in recent years. It would be unfair if rent increases were to be restricted by the Bill regardless of the fact that the growth in wages for the majority of PRH tenants was faster than the inflation rate.

11. Members disagreed with the Administration’s analysis and indicated their willingness to accept real wages as a realistic indicator of affordability if such information was readily available. In this connection, Miss CHAN Yuen-han said that real wages for the majority of PRH tenants was on the decrease, as evidenced by the real wage index of non-skilled workers in the manufacturing industry in recent years and the findings of her survey conducted on about 1,000 PRH tenants. The Administration was also urged to note that the growth in real wages for all employees in Hong Kong had also been negligible in recent years.

Charging effects and implementation difficulties

12. The Administration was deeply concerned about the implications of the proposed MRIR ceiling of 10% on new PRH estates where the current MRIR had already exceeded the proposed ceiling and cautioned that the proposed amendment might have a charging effect. The Chairman clarified that the proposed MRIR ceiling of 10% referred to the average ratio for all PRH estates. DD of H envisaged practical difficulties in calculating the average ratio for all the PRH estates on each occasion as rents were adjusted at different times in a year for different estates.

13. Having regard to the average MRIR for PRH Estates which was about 8% and the slow progress of the Comprehensive Redevelopment Programme (CRP), members held the view that the HA had the flexibility to raise rents on PRH estates as appropriate. Even upon completion of the CRP in the long run, the HA could still raise rents on the basis of the annual inflation rate and the growth in household income.

Improving productivity

14. The Chairman stressed the need for the HA to improve management and reduce operating costs of PRH estates. He said that in two PRH estates where management had been contracted out, the total management costs inclusive of the necessary input from the HA staff were only 60% of the costs incurred by the HA. He considered it unfair to require PRH tenants to pay higher rents to meet operating costs which had risen due to mismanagement of the HA. In reply, DS for H pointed out that services provided for PRH estates had improved in recent years. Any curtailment in HA’s expenditures on management of PRH estates would undoubtedly have an adverse impact on the scope and quality of services provided for PRH estates in coming years.

Progress of the Bills Committee

15. After deliberations, Mr LEUNG Yiu-chung confirmed that he would give notice to resume Second Reading debate of the Housing (Amendment) (No.3) Bill 1996 at the last LegCo sitting on 23 June 1997. Members agreed that subject to conclusion of deliberations, the Chairman would make a verbal report to the House Committee on 6 June 1997, to be followed by a written report.

II. Any other business

16. Members agreed to schedule the next two meetings on 30 May 1997 at about 3:30 pm immediately after the meeting of the House Committee and on 5 June 1997 at 2:30 p.m.

17. The meeting ended at 6:30 p.m.

Legislative Council Secretariat
23 June 1997

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