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6.2 Different Economic Consequences

of Housing Programmes in Hong
Kong and Singapore

It is useful to consider what taxpayers lose when they give away
a housing asset but then limit the recipient to using it only as a shelter.
The difference is a loss to society and nobody gains. To demonstrate the
magnitude of the losses, the per capita GDP growth rates of Singapore and
Hong Kong is compared. Figure 6 gives the real per capita GDP profiles for
the two cities in their own currencies. Throughout the period, Singapore
grew faster than Hong Kong at an average annual rate of approximately
1.35%. As a consequence, a Singaporean who started with $100 in 1965 was
making $1,307 in 2014, but his or her Hong Kong counterpart was making
only $725. The Singaporean had 80% more income.

This is because Singapore allows for an active market in public
housing units. This means it does not suffer the kind of deadweight social
welfare losses that are present in Hong Kong in both PRH and HOS units.
The factor alone could easily account for most, if not all, of the differences
in per capita real GDP growth. The same figure also plots the projected real
GDP per capita profiles for Hong Kong under two scenarios. Scenario 1 adds
0.5% to the growth rate, and Scenario 2 adds 1%.

It is conjectured that both Scenarios 1 and 2 underestimate the
losses to society of not allowing a market for public sector housing units

Figure 6. Real per capita GDP in Singapore and Hong Kong (including projected Hong Kong real per capita
GDP), 1965-2014 (normalised to 100 in 1965)

Source: World Bank.
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