Hong Kong Housing Authority and Housing Department

Dr. Chiu, Ladies and Gentlemen,

Winston Churchill seems an unlikely source for inspiration in the field of housing management. Nevertheless, I would like to start my talk with his observation: "We shape our buildings, thereafter they shape us".

Taking this quotation as my starting point, I would like to spend a few moments exploring how the physical environment of our city has changed over time; how we have or have not adapted to adjust to the new environment. I want then to peer into the future to see what further changes are afoot and, finally I will do what Dr Chiu has asked me to do, which is to look at what new responses these will demand of managers in general and the Housing Authority in particular.

Changes to the Physical Environment

Architects are fond of saying that post-war Hong Kong transformed itself from a horizontal to a vertical city, from low-rise to high-rise. That is a convenient short-hand, although it hides some of the steps along the way. Taking it at slightly slower speed, each decade has its own characteristic architectural and urban form:

• 50's: the "H" block resettlement estates, an emergency response to market collapse in the face of mass migration; cramped, non-self contained accommodation in 6 storey blocks; external balcony access encouraging neighbourliness; schools squeezed onto the roof tops;

• 60's: some marginal improvements in the public sector; bigger blocks; some monstrously large slab blocks up to 16 storeys; internal corridors discouraging neighbourliness, but more attention to community facilities; the private sector still only doing smaller, relatively low-rise, single block developments;

• 70's: the beginning of the new town decentralisation; the introduction of the Mass Transit Railway; the first major multi-storey private sector estate at Mei Foo; the start of the redevelopment of non-self-contained public housing;

• 80's: the growth of the new towns; introduction of public sector Home Ownership Schemes; multi-room flats with fewer flats per floor in tower blocks in public rental housing; the private sector following the public sector model of large multi-block self-contained estate communities such as at Tai Koo Shing and City One Sha Tin;

• 90's: the new generation of multi-room high-quality public sector apartments; the Harmony Blocks; greater emphasis on integration of transport and commercial hubs and other community facilities; the new private sector demand for quality life-style developments with swimming pools and club facilities.

Obviously, I am greatly simplifying things, but in very general terms the public sector has led the private sector from low-rise to high-rise, and from block based to estate based urban communities, in which social, medical, educational, commercial and transportation facilities are designed as an integrated whole. This change brings with it a number of consequences for management, consequences which relate both to complexity and to scale.

As regards complexity, the multi-storey residential tower blocks of today are vastly different from the comparatively basic technology of the resettlement estate "H" blocks. Lifts, water pumps, fire-fighting equipment, and alarm systems are just some examples of equipment and installations which require sophisticated maintenance. In the commercial centres, this list can be extended to include air-conditioning, lighting systems and escalators. Buildings have not simply gone from low-rise to high-rise. They have also gone from low-tech to hi-tech.

As regards scale, the Housing Authority's 170 odd estates range in size from a low of 250 households to a high of over 9,000. The average size is around 4,000 families, or 14,000 people. Anywhere else in the world this "average estate" would be considered a small to medium sized town. And frankly speaking that is what our estates are: towns, with shops and schools and other community facilities built in.

The Response to Change

The way we manage property has also changed over time, responding to these physical changes. Today's housing manager is no longer simply a rent collector and enforcer of tenancy conditions. In a very real sense, today's housing manager in Hong Kong is actually a "town manager", and she or he needs a whole mixed tool-bag of skills: from traditional housing management, through maintenance, security and traffic control, to welfare and community relations. The housing manager of today and tomorrow has to be a jack-of-most trades and needs to know how to organize others on demand.

Again the public sector led the way in developing a cadre of skilled management and maintenance professionals. And it is only comparatively recently that private sector management agencies have emerged to provide similar skills for private sector estates.

However, there is a further development, which flows from these changes in complexity and scale, which relates to quality, and which in the longer term will have a profound effect on the way we manage property. That development is the rise of ownership.

Ownership induces a sense of pride. Property which is owner-occupied almost by definition is better cared for and easier to manage. There are plenty of examples in the Housing Authority's estates of owned and rented blocks of virtually identical age, design and construction, standing side by side. You do not have to be an expert to recognize which one is which. You do have to be a housing manager to fully appreciate just how much more difficult it is to service tenants than owners. The Housing Authority's management costs reflect this all too clearly.

So why do we have so many more tenants than owners? To answer this, I will need to make a short digression.

The Rise of Ownership

When any government implements a policy, it almost always looks for a way of demonstrating progress in a numerical way. This is perfectly natural, but numeric measures and targets can sometimes be misleading. Occasionally, we fall accidentally into the trap of believing that big is beautiful, when in reality you are measuring the wrong thing.

Housing in Hong Kong provides an illustration of this phenomenon. Almost from the beginning of the public housing programme production targets have been set and success measured by the number of units constructed during the year, and the total number of people living in public housing. Nothing wrong with that when there are thousands of homeless people and the private sector is unable to keep up with demand. In those circumstances the more the government builds the better.

Civil servants of my generation are used to boasting of the success of Hong Kong's housing programmes. How often have you heard one of us say something like: over half of Hong Kong's population lives in publicly subsidised housing.

This statement is perfectly true, and it makes us feel good. But does it really tell us whether or not we are succeeding in solving Hong Kong's housing problem? In fact, is it not a little odd that in free market Hong Kong, where the Government is proud that it keeps itself small and efficient, that we should boast about how big our intervention in the housing market has grown?

What has happened is that a measure of success which was appropriate for an emergency, is no longer appropriate for a population with average family incomes which are higher than the OECD average. Surely a better measure of a healthy free economy is the number of happy home owners as a proportion of the population. In fact, over half of Hong Kong's families now live in homes which they own.

Both this statement and the earlier ones are true, ( if you add home owners in the private market and owners of HOS flats together you get around 51% ) but the latter statement is now a more appropriate measure of success.

Home ownership has risen steadily even as our population has grown. In 1971 it was only 17%, but since then it has grown at almost exactly the same rate as per capita GDP. If you take the last 25 years as the trend and carry it forward to 2007, the percentage rises to 66%. Our Chief Executive has now set the sights of the community slightly higher at 70%.

Transforming Tenants into Owners

Now we still have one third of the population living in public rental housing. So a key part of getting to the 70% target set by the Chief Executive will be giving them an opportunity to own their own homes. The CE has said that we should make the offer to at least 250,000 of our 660,000 tenants over the next 10 years, and that we should make the offer to no fewer than 25,000 in the first year. I stress "at least" and "no fewer" because, when we launch the Tenants Purchase Scheme early next year, assuming that it is warmly received by tenants, there is no reason why we should not do more and faster. And that is not the only thing which we plan to do to encourage home ownership.

Essentially, what we want to do is to expand the range of choice both of the type of subsidised properties for sale and the way in which prospective purchasers can pay for them. At the same time as we begin to sell rental flats to sitting tenants, we will launch a Rent or Buy Scheme. Eligible families on the waiting list whose turn comes round will be given the choice of renting or buying a flat on a low start mortgage.

Hopefully, we will be able to offer the same or similar options to families cleared for development or moved from Temporary Housing and Cottage Areas, and also to families in rental housing which falls due for comprehensive redevelopment. We also hope to broaden the range of types of flat which we build so that families have greater choice as to size and standard of finish. Last, but by no means least, we will gradually expand the number of loans offered under the Home Purchase Loan Scheme.

The result of all of these measures will be that over the next few years an increasingly large number of families who would otherwise have no choice but to live in public rental housing will become happy home owners. Whole estates in which the entire population are currently tenants will become owners. This will be a tremendous social achievement, but it will also involve a very radical change in legal and psychological relationships between residents and managers.

The first and most fundamental change will be that the relationship of the HA's Managers with residents of estates will change from that of landlord's representative to service company. This will not necessarily have an immediate impact, but ultimately it will. Think about it.

At the moment we encourage residents to participate in the management of their estates by appointment to Estate Management Advisory Committees. EMACs are chaired by the Housing Manager of the estate. As tenants are transformed into owners so these committees will be transformed into Owners Corporations. The Housing Manager may well sit on the Owners Corporation representing the interests of the HA as the owner of a small number of unsold flats, but his position will be very different from the present.

This is because Owners Corporations will have one particular power which the present EMACs do not have. They will have the right to choose who manages the estate. They may choose to retain the HA's services, or they may choose to hire a Private Management Agency. As you know, the HA already contracts out the management of all new estates. So the HA's management and maintenance teams will have to be competitive.

Owners will be responsible for the maintenance of their own flats. In fact, I suspect that shortly after sales begin, old tenant become new owners will start to redecorate and refurbish their flats. The Owners Corporations will also be responsible for the maintenance of the buildings and common areas. The HA will set up a Maintenance Fund in order to give them a good start.

A second and perhaps less obvious change is that the sale of flats to sitting tenants will lead to a rapid increase in mobility. At present fewer than 2,000 tenants manage to arrange mutual exchanges with other tenants during any one year. This is an extraordinarily small number given that we have over 670,000 tenancies. It seems that once allocated a flat few if any tenants move until and unless the estate is redeveloped.

Tenants become owners will have rather more freedom of choice. I foresee the secondary market for these flats taking off quite quickly. The result will be that more people will live where they want to, whether it be closer to work or preferred schools, rather than where history and government allocation have placed them. Apart from making them happier people, this should also result in savings in travelling time and a more rational allocation of housing stock.

A third change, relates to design and construction. Once we have started selling flats to sitting tenants, then in future almost everything which the HA builds will potentially be private property. So we must begin to design all of our new estates with new owners and their aspirations, resources and responsibilities in mind, rather than those of tenants.

Lastly, and for the longer term there will be consequences for how we manage our commercial properties. For the present, the HA will retain ownership of the commercial centres of the estate. Traditionally they have helped off-set deficits on the rental account. However, in the long run the question must be asked: why in free market Hong Kong is a government agency running 850,000 square metres of commercial property. Several options suggest themselves, ranging from single operator franchises to outright sale, but I do not want to pre-empt future decisions. Ultimately, however, the objective must be to re-engineer the whole of each currently public estate into a private estate, no different in legal form and management arrangements than such private estates as Chi Fu Fa Yuen or City One Sha Tin.

Management Reform in HD

All of this presents many challenges to the Housing Department. Since January this year we have been embarked on a comprehensive programme of reform under the umbrella title: "Management Enhancement Programme", or "MEP" for short. I say "umbrella" because the reforms embrace not only changes to policy, such as the privatization initiatives mentioned earlier, but also to organisation and to culture.

Policy

Under the heading of policy, the Housing Authority has for some time been concerned that while there are many people who need the community's assistance in housing, quite a few in public housing no longer need it and should be persuaded to make way for those who do. This pursuit of a more "rational allocation of housing resources" takes many forms, but includes for example the measures taken this year to charge better-off tenants market rents. In a similar spirit we will be introducing uniform income and asset tests next year and will work towards a more pro-active approach to shortening the waiting list. Clearly the CE's push for ownership adds a new dimension, a new sense of direction to this. But even assuming that as many of two thirds of our tenants are enabled to purchase property that will still leave at least one million people in public rental housing.

Arguably these tenants will be those who are most in need. Probably they will include a disproportionate number of elderly persons. With this in mind we are now working with colleagues in other government departments to ensure that their needs are addressed as humanely and comprehensively as possible. The principal focus of our subsidized rental and other services must be those who need society's help, rather than those who do not.

Organisation

Until recently any outside observer would have told you that the structure of the Housing Department was classically bureaucratic. Authority was highly centralized, activity was overly specialized or compartmentalized, chains of command were long, coordination poor and responsibility confused. In common with most public sector organisations cost-consciousness was almost non-existent. For example while some housing managers would be able to tell you how much rent they collected each month, few had any idea of what was spent on their estate.

The reorganization of the department in mid-April this year represents a crucial first step in addressing these weaknesses. The department has been regrouped around four "core businesses": construction; allocation and sales; management and maintenance; and commercial properties. These are supported by two others: Financial and Corporate Services. Paralleling this change, the terms of reference of each of the Housing Authority's sub-committees have been clarified so that each is clearly responsible for a single business area. Each Business Director has been required to draw up a business plan embracing key objectives, planned initiatives and financial and other performance indicators. Once endorsed by the relevant HA Committee, these form the basis of the HA's budget.

This first phase of reforms at the macro level will make it possible to devolve greater operational and financial responsibility and authority. On the management side, the smallest natural operating unit is an estate. The end result of the reforms is thus to ensure that the Manager of each estate is empowered to run that estate with minimal interference from above. The reforms should also ensure greater transparency than has previously been the case.

We are now mapping out training programmes which will equip staff for this new environment. Also at a micro level, a whole host of business process re-engineering initiatives are in train, aimed at making life easier both for staff and for our customers.

Culture

A key part of our effort under the MEP to break away from traditional bureaucratic culture is the adoption of three core values. We aim to be caring, customer-focused and committed.

This has translated into a drive towards greater transparency and accountability. All businesses and branches of the department now have key performance indicators internally, and service time and quality pledges externally. During the year, we published for the first time a pamphlet setting out comprehensively our various customers' rights and responsibilities. At the estate level improvements are being made to office environments. Customer Service Officers now greet all customers to ensure that they get the service they need as quickly as possible, assisting them for example with making appointments for visits by maintenance contractors and the like. Estate Management Advisory Committees have been established in some 140 rental estates.

Quite apart from the immediate improvements which these reforms have achieved, the longer term objective is to prepare all staff for the future, to nurture a culture in which the customer is not only right, but is ultimately if not already the boss.

Conclusion

I started this lecture with Winston Churchill's observation that we shape our buildings, and that thereafter they shape us. The sophisticated multi-block, high-rise estate built around a transportation hub and commercial core has become the standard urban unit. We must design and train our management teams so that they can manage these modern vertical townships effectively and efficiently. But it is not only buildings which shape management organizations and culture. The identity of those we manage is at least as important, as the progressive privatization of public housing over the next decade will demonstrate.

I hope that none of you will regard the picture which I have painted of the future as in any way threatening. The opportunities are enormous. One of the things which may not be obvious to you as you burn the mid-night oil writing papers for this course is that the status of your profession is rising.

Twenty-five years ago the term "housing management" was associated almost solely with public rental housing. Today "management" is regarded by the private sector property owner, whether corporate or individual, as an essential ingredient for preserving and enhancing the asset value of their homes. And the reputation of Hong Kong's housing managers for quality services is gaining increasing recognition. You will have seen the expression "under Hong Kong management" gives added value to projects sold across the border.

Demand for higher quality and more sophisticated property management is on the rise in public and private sector alike and competition is increasing by the day. So your chosen profession is not only on the brink of considerable change, it is also a growth industry. You have chosen well.