The Misallocation Problem of Subsidized Housing: A Lesson from Hong Kong

Ka Shing Cheung, Siu Kei Wong, Kwong Wing Chau and Chung Yim Yiu
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Ka Shing Cheung: Department of Property, The University of Auckland Business School, 1142 Auckland, New Zealand
Siu Kei Wong: Department of Real Estate and Construction, The University of Hong Kong, Hong Kong, China
Kwong Wing Chau: Department of Real Estate and Construction, The University of Hong Kong, Hong Kong, China
Chung Yim Yiu: Department of Property, The University of Auckland Business School, 1142 Auckland, New Zealand

Sustainability, 2021, vol. 13, issue 4, 1-14

Abstract: Providing affordable housing has become one of China’s key national policy agenda items. The shared-equity model in Hong Kong, implemented since the late 1970s, has assisted many families in owning a home in the public housing market. However, little attention has been paid to their welfare after acquiring their subsidized units. This study aims to examine how shared-equity homeownership distorts residential mobility through in-kind subsidies. Panel data analysis reveals that the more in-kind subsidies owners receive, the longer they would hold on to their units in spite of spatial mismatches. Private owners, on the other hand, would trade their units without such distortion. Conceptually, the lower mobility of assisted owners could be interpreted as a new source of misallocation in Glaeser and Luttmer’s welfare analysis. Practically, this throws into question the sustainability of a subsidizing homeownership policy: does the government ultimately want assisted homeowners to move from public housing to private housing in the future (for which high mobility would be intended)? If so, new thinking on how to make in-kind subsidies transferable is needed.

Keywords: subsidized homeownership; residential mobility; misallocation; spatial mismatch; panel data estimation (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
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