Supply of Subsidized Sale Flats and Private Housing Prices in Hong Kong

This paper investigates the association between the supply of subsidized sale flats by the Hong Kong Housing Authority and private residential property prices in Hong Kong, and their cause-and-effect relationships. The objective is to determine whether a sudden cessation of production and sale of the Home Ownership Scheme (HOS) and Private Sector Participation Scheme (PSPS) flats between September 2001 and end of June 2002, and indefinitely from 2003 onwards would encourage public tenants to buy in the private sector and subsequently increase private housing prices. The analysis is based on the supply of HOS/PSPS flats since its introduction in February 1978 until the last batch of flats sold in July 2002. The impact of supply restriction on private housing prices was examined. Using quarterly data for 1978-2003, the results show that housing prices move independently of the supply of these subsidized sale flats and that such supply does not “Granger cause ” housing prices. The study has also found evidence that the cessation has not restored the market or resulted in any increase in housing prices. Finally, the private housing market is not affected by the implementation of the moratorium nor do the production and sale of subsidized sale flats pose a direct threat to the private housing sector in Hong Kong