Hong Kong has a serious housing problem. Solving it is now a major government priority. According to the government's recently announced Long-Term Housing Strategy, 290,000 public housing units, both public rental housing and home ownership scheme units, will be built. Although this 290,000 number is still believed by many to be insufficient, it has almost twice the amount currently being produced. On average, the current number of public housing units being built annually is around 15,000 units. This sharp increase in housing production obviously exerts considerable financial pressure on the Housing Authority (HA).

The HA' s cash and investment balance is, therefore, likely to fall significantly. The existing balance is over HK$60 billion, but estimates show it will decline to around HK$28 billion in four years. Simple arithmetic tells us that when more housing units are added to the list, the HA will have insufficient funds to meet its needs.

On different occasions, the HA has publicly discussed the financial difficulties it faces. In this year's budget speech, Financial Secretary John Tsang Chun-wah asked the HA to estimate the financial gap which will result from the provision of further public housing. This is so the government can prepare for it. A long-term housing strategy cannot be accomplished without a strong financial commitment from the government. But how much money should it inject into the HA and when? The government already has to fund many public services. Although housing is a top priority, healthcare, education, social welfare are also important. The government should not be pressured to support public housing at the expense of other social services. The allocation of public resources clearly must be handled with great care.

So the financial secretary was right when he said establishing a housing fund was timely and sensible. Of course, whatever the government does will always attract criticism. But people should not be too quick to criticize.

Estimating the fiscal gap faced by the Housing Authority is a difficult task. As the HA is a self-financing organization, Hong Kong cannot build endless public housing units because resources are limited. According to new housing construction indicators, a huge capital injection from the government may be necessary. This has also been suggested by the financial secretary's blog postings - the government is worried about having to commit over HK$100 billion. While this is a lot, but Hong Kong can still handle this because of its large financial reserves. Nevertheless, the housing problem is not a one-off issue. Another long-term housing strategy will be needed after the current one ends. If the HA cannot be self-financing in the long term, it may have to seek further funding from the government. Clearly this will be a considerable financial burden for the government.

Because of these considerations, the proposed housing fund is necessary. The idea behind it is simple: it intends to set aside more reserves during the good years so the HA has adequate financial resource when more are needed. The beauty of the fund is that it is specifically designated for public housing; financial resources for the fund will not be used in other areas. If there was not such a fund, future use of financial resources in public housing could not be guaranteed. It is possible that financial or political considerations might even prevent the government investing in public housing in future. Therefore, the establishment of the fund also demonstrates the long-term commitment of the government.

Another advantage of the fund is that money can be accumulated gradually. This will probably mean it will only have a minimal impact on the government's current public spending.

Of course, every government action is subject to criticism. Some people may think the fund will reduce the number of government "sweeteners" offered in future budgets. However, budgets should not always be about "sweeteners". Public finance should always aim to be an investment in the future.

The author is the dean of School of Business in Hang Seng Management College.

(HK Edition 01/05/2015 page1)