Rental ceilings

Housing issues have been for a long time a main point of contention. Rising sale prices and rents have put the acquisition and renting of a place to live beyond the reach of many. Time and again, the government has refused to intervene, arguing that it is not the role of the administration to interfere with the functioning of the (presumably free) market. Tomorrow, in the Legislative Assembly, some legislators will submit a proposal introducing some changes to the rental market operation. They include a new rule under which the Chief Executive will, in the future, set a ceiling for rental increases. The proposal deals with other related matters as well, but we will focus here on this particular issue.
Two questions come to the fore. First, how strong and defensible is the ‘hands-off’ approach of the government? Secondly, if that is found insufficient or inadequate, how appropriate and feasible is the mechanism proposed?
It certainly sounds reasonable that a government should avoid interfering with the normal functioning of the market, in most cases arguably the ‘natural’ mechanism for interaction and regulation of conflicting private interests. Should the Macau real estate market be, by any reasonable measure, a ‘free market’, the administration’s non-interference approach would be unimpeachable. It is doubtful that, under such circumstances, the administration could properly arbitrate the various interests involved. But Macau land and construction markets – the two are intertwined, for reasons that need not be developed here – can hardly be defined as such.
The reasons why can be easily listed. The government has a virtual monopoly of land. Building construction is decided in negotiations set directly between developers and the authorities, where the latter can and do decide in a mostly discretionary manner. Those negotiations are largely limited by circumstantial considerations, in the absence of both limits imposed by urban planning and enforceable (or actually enforced) construction regulations.
A passive policy approach, under such a framework, results in actual types of housing units approved and built being, deliberately or not, in short supply relative to internal needs, among other consequences. Summing up, the imbalances in the market are endogenous to the domestic market set-up, reinforced by policy omissions and limited political representation of some of the parties involved. This situation is unlikely to change significantly, given the nature of the political system and the way various social interests are represented there.
Under these circumstances, it can be argued that some policy intervention is warranted, as a sort of ‘second-best’ choice – especially if we recognise that these matters are sources of continuous social dissatisfaction. But is the mechanism proposed appropriate? It is debatable; but we assume it will be approved, given the list of supporters. On pragmatic grounds, it will mostly depend upon the interpretation the CE will make of this new power and obligation, and how fair the decisions will be deemed by the various parties affected. Only time will tell how hot that spot will be.