Rush for tiny homes explains our cavernous wealth gap

Hong Kong's wealth gap has widened to a historic high, with the richest household now earning about 44 times what the poorest family scrapes together. This puts the city behind New York as the world's second-most unequal in terms of income, according to the household income distribution report released on Friday by the Census and Statistics Department.

Announcing the report findings, Commissioner for Census and Statistics Leslie Tang Wai-kong pointed out that the Gini Coefficient - an index from 0 to 1 that measures the wealth gap - for households rose 0.002 from 0.537 in 2011 to a record 0.539 last year. That was the highest figure since the city began keeping records on income equality 46 years ago.

Tang attributed the growing disparity to the adverse impact of an ageing population coupled with an increase in the number of smaller households, which is the line-to-take in policy and academic circles.

"The higher income inequality ratio for households is almost entirely the result of their changing demographic composition. Hong Kong has more low-income households today because there are more households composed of single parents, young working adults, and the non-working elderly than in the past," economist Richard Wong Yue-chim once said, explaining why he believed the situation of wealth inequality was not as bad as it seems. "Household income inequality therefore has risen naturally because of population ageing, divorce patterns and preferences for not living with parents. Remove these factors and the changes are quite modest."

The logic Wong gave was not unlike Tang's. For them, this is all a matter of statistics, of how household are grouped together. If young Hong Kong people continue to live with their parents, and elderlies are also invited to live together with their children, then the Gini Coefficient figures would look less embarrassing.

Inadvertently, they have uncovered the root cause of wealth inequality in Hong Kong. It is filial piety! Why can't Hong Kong residents just live together as big happy families, just as those portrayed in TVB series? As the Chinese saying goes, the ideal is for the three generations - the grandparents, parents and children - to live under the same roof.

A bigger household also makes economic sense. In most cases, a bigger household yields a lower average living cost. Why would poor elderly people and youngsters want to live alone? That just does not make sense.

Let me venture a guess. Would it be because, as property prices spiral upwards in Hong Kong, the race is on to build smaller and smaller homes?

Today, popular among young couples are "nano" flats. These homes are less than 200 square feet and cost about HK$4 million on average. Such flats made up a tiny 1.4 percent of the 15,595 new homes built in Hong Kong last year. This year, about 5,900 small homes - less than 430 sq ft in size - are expected to be built, comprising 41 per cent of all new flats, according to a property consultancy.

If household size remains the same, maybe our wealth inequality figures would look better. However, household size is decreasing and therefore family members are sharing household expenses less efficiently. Even the size of houses is shrinking, making it impossible for more family members to live together amiably. There is nothing "natural" about all this, and we cannot "remove these factors" to make a better-looking Gini Coefficient.

Some officials tried to put a positive spin on the latest wealth inequality findings, claiming the gulf between haves and have-nots had actually registered a slight drop, taking into account the effects of taxation and social benefits.

This also sounds dubious. Hong Kong is consistently ranked the freest economy in the world with low tax schemes. This means there isn't the money in government coffers to finance social spending on the scale seen in Europe or the United States. One point in particular is that the metropolis lacks capital gains tax, so the wealthy are free to expand their wealth through investment absent any taxation.

Let's be realistic. The Hong Kong government has never been very interventionist. The adoption and adjustments of the minimum wage may be meaningful for easing inequality. The low tax rates and minimal social benefits are not going to help much.