This paper argues and provides statistical evidence that the very serious recession that Hong Kong underwent in 1998 was not the direct result of the Asian Financial Crisis but rather the result of the ecological consequences of misguided housing policy adopted by the Hong Kong SAR Government. By selling public housing cheaply to tenants, the attractiveness of Home Ownership Scheme housing was reduced dramatically. Price declines of HOS housing spread to housing of a more superior quality because the latter depends on HOS owners trading up. Lacking buyers from among HOS owners, the owners of these units could not trade up either. As a result the entire housing market and economy plunged into deep recession.