Over the past 50 years, Hong Kong has pursued a vigorous public housing programme to meet the changing needs and aspirations of our community. Many have seen this as a major factor in Hong Kong's emergence as a stable and prosperous society.

Moreover, our public housing programme has provided a model which has been recognised and emulated by many other cities and countries throughout the region and around the world.

Repositioning of housing policy

The economic fortunes of Hong Kong experienced major reversals, starting with the outbreak of the Asian financial crisis in 1997. We then encountered economic and other setbacks, perhaps too many to recount here, but, still fresh in our minds.

The downturn in the economy was further exacerbated by spiralling deflation. There was no significant sign of abatement until after we came out on top of the SARS outbreak last year. The effect of all these on our society was momentous.

In the property market, these had led to a sharp decline in the number of residential property transactions, resulting in an oversupply situation and a sharp fall in property prices. The pain and anguish inflicted upon the community, particularly among homeowners who are in negative equity, was widespread and deeply felt.

The subdued demand and oversupply situation called into question the Government's role as a "bricks-and-mortar" supplier in the property market; in particular its provision of subsidised flats for sale under the Home Ownership Scheme at a time when private-sector flats have become increasingly plentiful and affordable even to those with lower incomes.

In view of the changed circumstances, the need for the Government to undertake a timely and comprehensive review in order to realign our housing policies and programmes was self-evident.

Statement on housing policy revised

And so, in November 2002, the Government announced its revised Statement on Housing Policy, which spelled out in clear terms the different roles played by the Government and the market in the housing sector. It made clear that the Government will confine itself to the provision of public rental housing for families who cannot afford private housing.

To give full effect to this policy stance, the Government will cease playing the role of property developer by halting the production and sale of public subsidised flats under the Home Ownership Scheme. The statement also underlined the importance of maintaining a stable environment to enable the sustained and healthy development of the property market on a level playing field.

The three most basic policy considerations upon which the statement was founded are:

* to provide for the under-privileged;

* to keep market intervention to the minimum; and

* to provide a stable level playing field.

Caring for low-income families

First, we will maintain our principled position of providing basic and decent accommodation to all our under-privileged citizens. We have, therefore, re-affirmed our policy of providing subsidised public housing to those in genuine need - low-income families who cannot afford to rent homes in the private sector.

We have not specified the quantum of annual production to meet this policy commitment because this is closely related to the number of people in need. And if we believe that our policy will bring about significant inroads in this regard, the numbers will surely decrease as a function of time.

We have therefore adopted a different approach by pledging to maintain a supply of public rental housing for needy applicants so as to keep average waiting time of the waiting list to around three years.

Minimal market intervention

Second, the Government will keep to the bare minimum any intervention measures which may affect the private property market. Falling property prices and mortgage interest rates from late 1997 to 2003 have made private sector flats more affordable, even to lower income families.

Intervention in the property market by the Government through the supply of Home Ownership flats was no longer justified in terms of cost-effectiveness and the maintenance of a healthy property market.

We have therefore changed the emphasis in the manner we offer assistance to families who are above the income limit for rental public housing and who, nonetheless, wish to own their own homes. It should not be surprising that we have opted, instead of bricks and mortar, to provide loans for this purpose.

It was not an easy decision as we did recognise that the provision of home ownership loans was a form of market intervention. However, we judged that the withdrawal of the Home Ownership Scheme without alternative arrangements would be counterproductive. It would be prudent to attempt a phased process. That was why we entered a footnote to the effect that we would conduct a review of the merits of continuing with the provision of the loan scheme at a suitable juncture.

The opportunity for this review has arrived much sooner than expected because very low interest rates have given rise to an abundance of very attractive and competitive mortgage loan schemes, available to all home buyers provided by banks and property developers. We have already begun such a review and we expect to come to some conclusions in the middle of the year.

Stable operating environment

It has always been our policy to maintain a fair and stable environment to enable the property market to operate smoothly. Under the present circumstances, it will be incumbent on us to make sure that we are in a position to make land available to meet market demands.

While we will make no judgment on the quantum of private housing production at any particular point of time, as this is a matter for the market, we will just make sure that we will not be caught short when demand builds up. The recent announcement of the resumption of the land application list system for the disposal of land for private property development gives testimony to the implementation of this policy.

Challenges for policy makers

Looking from a macro-perspective, Hong Kong's economy is showing healthy signs of recovery after the adversities we have been through in recent years. This is the result of the hard work of our community, as well as the measures we have adopted. We have also benefited from improvements in the overall global economic environment.

The relaxation of individual visitors from the Mainland of China has boosted the local economy, particularly the retail and tourist industries. The implementation of the Closer Economic Partnership Arrangement between Hong Kong and the Mainland has enabled Hong Kong's business and professional sectors to explore new business opportunities in the huge Mainland market or expand their existing businesses.

The new Capital Investment Entrant Scheme is expected to promote the inflow of investment funds, which will benefit the economy. Both deflation and unemployment statistics are beginning to show signs of abatement.

One aspect of the economic recovery and improvement of public sentiment we are now witnessing has been the gradual revival of the property market. There have been initial signs of a rebound in recent months.

We firmly believe that a clear, comprehensive and consistent housing policy will be instrumental in restoring the long-term confidence of the public and investors. We will continue to implement and consolidate our policy in this regard.

Housing Authority's financial position declines

The cessation of the production and sale of subsidised flats has adversely affected the financial position of the Hong Kong Housing Authority. As a result, the authority is facing a substantial decline in the funds available for maintaining a sustainable housing development programme.

The authority is now actively exploring ways to strictly control the construction and management costs of public rental housing. At the same time, the authority is also striving to improve its work processes, thus further enhancing its efficiency and saving resources.

The authority is mindful of the need to ensure the rational use of housing resources in meeting society's needs. Towards this end, it will undertake a review of the mechanisms currently in place for adjusting the rents for public housing.

The review will also examine the existing allocation policies of public rental housing, including ways to expedite allocation, lower the vacancy rate, and tighten up on our policies concerning well-off tenants.

On breaking new grounds for additional income, the authority is taking steps to divest its retail and car-parking facilities by means of a public listing on the Hong Kong Stock Exchange, which we hope to implement within 2004/05.

Building a better home

We are of course continuing to strive relentlessly for other improvements in our subsidised housing programme. We will achieve them through closer and more effective cooperation with all the stakeholders in this area, including the construction industry, the property sector and - most importantly - the community as a whole.

We will listen ever more carefully to the community's views about public housing; and we will make every effort to satisfy its needs. We will strengthen our partnerships with the construction industry and housing professionals. Together with them, we will explore and implement innovative new design concepts and construction technologies that will enable us to build better homes in a smarter and more cost-efficient way.

We will take measures to maximise the economic lifetime of our existing housing stock. We will also review the development intensity of public housing projects, with a view to enhancing their living environment.

Working closely with residents, we will further upgrade the quality of the maintenance and management of public housing estates, to make them cleaner, healthier and more environmentally friendly places to live.

Clearer demarcation of public, private sectors sought

The purpose of the repositioned housing policy framework I have just described is to facilitate a more clear-cut demarcation of the public and private sectors. Our success in doing so will depend on our ability to make the most effective use of our valuable housing resources in both the public and private sectors under changing economic and social conditions.