Information Paper for the Legislative Council Panel on Housing
Domestic Rents for Public Housing Estates
This paper informs Members of the domestic rent policy for public rental housing (PRH) estates and the measures taken by the Housing Authority to help tide tenants over the period of economic adjustment.
RENT SETTING POLICY
2. Rents for public housing are determined on the basis of tenants' ability to pay. The principle of affordability is translated into two median rent-to-income ratio (MRIR) ceilings. In setting rent levels, the Housing Authority takes into account inflation, rates, its own operating costs and the relative value of the estates.
3. For newly completed estates, the Housing Authority's overall aim is to ensure that the MRIR of prospective tenants do not exceed 15% in respect of the minimum space allocation standard of 5.5 square metres internal floor areas per person; and 18.5% in respect of the higher space allocation of 7 square metres or more per person. Notwithstanding this, the average MRIR of the prospective tenants stood at 12.1% and 15% for the respective space allocation standards in the past five years. In other words, they were well below the respective MRIR ceilings.
4. The Housing (Amendment) Ordinance 1997 provides that any variation in public housing rent levels shall only take effect at least three years after the coming into effect of the previous rent determination and that the overall MRIR of households shall not exceed 10% after any rent adjustment.
5. The MRIR for Housing Authority tenants as a whole is now only about 9.3%. Public housing rents represent, on average, about 27% of the market rent for comparable flats in the private sector.
6. To assist to tide tenants over the period of economic adjustment, the Housing Authority granted an one-year rent increase waiver to the tenants of some 263,000 PRH flats involved in the rent review exercises conducted in September 1998, December 1998 and April 1999 respectively. The total rental shortfall arising from these measures is around $ 741.7 M.
7. In May this year, the Housing Authority decided to assist PRH tenants further by extending for one more year each of the waivers granted to tenants in 1998. It also decided to defer for one year the rent review of two batches of PRH estates (some 340,000 flats) which are due for rent review in September 1999 and December 1999 respectively. The total rental shortfall so incurred is in the region of $ 1 610.3 M.
8. In addition, the Housing Authority maintains the best rent of newly completed estates at the July 1997 level up to December 1999. A reduction of annual rental income of $173.9M as a result of freezing the best rent is anticipated.
9. The above relief measures have posed a significant financial impact on the Housing Authority. The Housing Authority will need to continue to look into measures of increasing productivity, enhancing efficiency, controlling expenditure as well as streamlining the organisational structure.
10. The current rent levels in PRH estates are generally within tenants' affordability. While some 75% of the households are paying a monthly rent of less than $1,500, an overwhelming proportion of PRH tenants are paying rents which have remained at the same levels for four to five years.
11. Tenants in temporary financial hardship may approach the Estate Office for rent assistance under the Housing Authority's Rent Assistance Scheme. Those who have long term financial hardship may approach the Social Welfare Department for application of Comprehensive Social Security Assistance. As for the prospective tenants who cannot afford the rents of the new estates, they can choose refurbished flats which are also popular.
12. Under the current Policy on Safeguarding Rational Allocation of Housing Resources, double rent paying tenants with household net asset value exceeding the prescribed limits are required to surrender their PRH flats. Those who need time to look for alternative accommodation can apply for temporary stay up to a maximum of 12 months, during which licence fee equivalent to market rent has to be paid. The market rent is determined by reference to the assessment provided by Rating and Valuation Department, management costs and rates. As a result of the General Revaluation, the assessed market rent with effect from 1 April 1999 is lower than before. However, this has no correlation with PRH rents which are determined on the basis of tenants' ability to pay.