Housing remained the top priority in Chief Executive John Lee Ka-chiu’s second policy address, delivered last month; he elaborated on his housing policies at great length. Besides building on the initiatives introduced last year, there were also new measures responding to the latest market developments.

While it was encouraging to see signs of the housing supply shortfall reversing, this is merely the first step in solving the long-standing issues of limited living space and unaffordable housing. It is important to know where we are and determine our next steps in the pursuit of improving liveability in Hong Kong.

As expected by the market, the policy address announced a partial easing of “spicy” property curbs. The special stamp duty levied on resold property now applies to resales within two years, rather than three, while the buyer’s stamp duty and new residential stamp duty were both halved to 7.5 per cent. Moreover, stamp duty was suspended for eligible overseas talent buying homes in Hong Kong.

These measures are welcome as they will improve not only market liquidity but also the quality of life of home upgraders. They also send a positive message amid Hong Kong’s push to attract talent.

The relaxation of the spicy measures, as the government acknowledged, was a compromise between different interests. It reflects the inherent contradictions in Hong Kong’s private housing market.

Private residential property can be both an investment and a home. While buy-to-let investors would like to see all spicy measures scrapped to lower their transaction costs, homebuyers want the property cooling measures to remain to help make prices affordable. Since roughly half of Hong Kong households are homeowners, with the other half tenants, any change to policy measures will hurt either side.

Therefore, in addition to regulating the private housing market, the government should establish a separate housing market for permanent residents – comprising subsidised public housing flats under the Tenants Purchase Scheme, the Green Form Subsidised Home Ownership Scheme, Home Ownership Scheme and “starter homes” scheme.

In this market, flat owners would be allowed to trade their units without having to pay the premium beforehand, but only with Hong Kong permanent residents looking for homes. In this way, the private housing market would remain unchanged and open to everyone, including foreigners and investors, but its price fluctuations would not affect ordinary people.

For this “permanent residents’ property market” to be sufficiently appealing, however, the flats must offer a decent and comfortable living environment. This calls for improvements in the size and quality of public housing. The government’s emphasis for now is on quantity – and some initial progress has been made.