This chapter makes the hypothesis that both the earlier economic miracle and the latter demise were due to what can be called the Henry George effect. The Henry George effect refers to the beneficial effects when land rent was main source of fiscal revenue allowing a very low tax rate on incomes and consumption. Prior to 1997, a strong property market, nurtured by a regime of low taxes and a policy that encouraged people to pour their savings into the housing market, gave much impetus to the economy and allowed entrepreneurs to obtain bank credit with relative ease using properties held as collaterals. Strong investment and consumption, sustaining economic growth even when exports growth was not so strong, caused an economic boom, further bolstering the run-up in property prices. Unfortunately, the Special Administrative Region Government did not realize the inevitability of property price increases during times of sustained prosperity and set out to increase housing supply significantly in an attempt to dampen the price increase. At the same time it went about boosting homeownership by selling public housing at deeply discounted prices, without knowing that this would immediately reduce the flow of funds from the richer public housing tenants into the housing market. The result was a collapse in property prices that amounted to several years of Hong Kong’s GDP. This destroyed an important source of fiscal revenue and also eroded the collateral values of properties. The resulting credit crunch also caused a dramatic shrinkage in the demand for office space, resulting in an even steeper decline in office rents and prices than residential rents and prices.
|Title of host publication||The July 1 protest rally: Interpreting a historic event|
|Publisher||City University of Hong Kong Press|
|Number of pages||29|
|Publication status||Published - 1 Jan 2005|