According to the CBRE Global Living Report 2020, with an average property price of 1,254,442 USD, Hong Kong is currently the most expensive property market in the world. As a result, the average waiting time for public housing is now up to 5.5 years, and the median housing price is 20.8 times the median gross annual household income before tax. Other serious consequences of the city’s astronomically high housing prices include the prevalence of tiny ‘cage homes’ about the size of a single bed, and people resorting to sheltering in fast-food restaurants. Because of the severity of the housing crisis, the government should resolve smaller facets of the problem including the land sale system, the unsustainable use of land, and the lack of legislation sooner rather than later.
The Hong Kong government is deeply involved in the housing market, with 50% of the population living in public housing, a phenomenon that dates back to the post-war years. There are three main contributing factors:
Firstly, increasing housing supply following World War II was difficult due to the implementation of a rent control policy in 1947, which made it nearly impossible to evict tenants for redevelopment purposes, and because of the constraints imposed on the private redevelopment of urban housing.
Secondly, the number of immigrants to Hong Kong during the post-war years increased dramatically, resulting in the population skyrocketing from 600,000 in 1945 to 2.3 million by the end of 1951. As a result, the demand for housing also increased rapidly, resulting in a severe housing shortage and the prevalence of squatters. 300,000 squatters occupied land that could have otherwise been developed.
Lastly, due to hostility towards private housing developers, many of whom had participated in housing development for squatters, the government was reluctant to support private housing development and thus took on the task themselves. This decision was also motivated by the fact that the colonial government hoped to curtail intense social unrest in 1967, during which there was violent, large-scale rioting between pro-communists and the Hong Kong Police Force, by placing the growth of public housing schemes in a central role in their policies. Hence, these three factors cemented the government’s dominant role in the housing market.
Because the government is inextricably involved in the housing market, many argue that responsibility for the crisis can be attributed to failures of government policy.
The government’s current land sale system contributes to the city’s exorbitant housing prices. The People’s Republic of China currently owns all of the city’s land, apart from the land of St. John’s Cathedral, which is the only piece of freehold land in Hong Kong, and the Hong Kong government is able to lease this land to the public. Developers have to bid for the land that the government leases, and whoever makes the highest bid is granted the lease of the land. The bid has to reach a minimum quantity, the estimated value of the land, which is based upon restrictions on how the land can be used, the conditions of the lease, and market developments. If this minimum quantity is not reached by any of the bids, the government will cancel the sale of the land and instead try and resell it in the future.
Housing developers are expected to pay 3% of the rateable value of the land on the day it was leased in the form of government rent throughout the term of the lease. The remaining 97% of the rateable property value must effectively be paid upfront. David Webb, a corporate governance advocate, has suggested that this significant land premium results in powerful land developers dominating the market, as they are the most capable of financing such a significant land premium. He also points out that the significant government revenue that the government earns from these housing premiums can only be used for infrastructure projects, which he argues are often more for grandeur than being based on sound economic reasoning, such as the Hong Kong-Zhuhai-Macao bridge.
Additionally, this system of granting leases to the highest bidder can consequently result in the housing prices being driven to extreme heights. In recent years, developers from mainland China have exacerbated this issue as evidenced by the recent record breaking purchase of a piece of land expected to yield 294,000 square meters of floor area for 42 billion HKD.
Webb asserts that if the land premium is reduced to, for example, 30% of the value of the land instead, with an additional 30% paid through government rent, this would allow for easier entry into the market, increased competition, reduced profit margins and, in turn, more affordable housing prices.
Many have also criticised how government action and policies have resulted in significant portions of land being either completely unavailable for development, or not being developed for high-density housing that could most effectively meet the growing city’s needs. For example, some argue that the small-house policy is a contributor to the Hong Kong housing shortage.
Hong Kong’s controversial small-house policy, first introduced in 1972, allows for male indigenous villagers who own land within their villages to obtain a building license, at no cost, to build their own small, low density homes. If the land that they already own is unsuitable for housing development, they can exchange their land for a piece of government-owned land. Male indigenous villagers who do not already own land can apply to lease a government owned piece of land in the village at a discount. Not only is this policy controversial due to its discrimination against women and its benefits being offered only to indigenous villagers, it is also problematic because it is unsustainable; there will not be enough land to meet the claims of every eligible villager in the long term. One fifth of Hong Kong’s urban areas, 5000 hectares, is currently reserved for the implementation of this policy. This island could be used towards more high density land development that could also effectively help address the housing shortage and lower housing prices.
Moreover, some have accused private developers of hoarding significant portions of land that could otherwise be used towards housing development. According to government estimates, major developers may hold up to 1,000 hectares of rural land, which could satisfy a significant portion of the estimated need for 1,200 hectares of land to meet housing demand. Many developers hope to earn significant profits from acquiring land, through shell companies and middle men to otherwise conceal their involvement, and then hoarding this land while awaiting a rise in prices.
The main strategy the government is employing to promote the provision of more affordable housing is land reclamation and the creation of artificial islands. It has launched the project “Lantau Tomorrow Vision”, which aims to reclaim 1,700 hectares of land, expected to house 700,000 to 1.1 million people by creating an additional 400,000 homes. 1000 hectares around Kau Yi Chan island will be reclaimed in the first stage and an additional 700 hectares will be reclaimed in the second phase. Work is expected to begin in 2025, and people will begin moving onto the artificial islands by 2032. In total, the project is estimated to cost 624 billion HKD.
However, many have criticized this project. Confidence in this land reclamation project has been diminished by past infrastructure projects that have been delayed or resulted in spending more than the allocated budget. There are also important environmental concerns regarding land reclamation, due to its impact on marine ecology, and habitat loss. The livelihoods of fishermen and other coastal industries will also be adversely impacted. Many environmentalists have also argued that the government should instead prioritise the development of brownfield land, or land that was previously used for agricultural purposes and has since been converted to other uses, suggesting that the current housing crisis is not caused by a land shortage, but rather government mismanagement of the land that is already available.
Evaluating the project itself, some have questioned if it is really plausible to house 700,000 people on just 1,000 hectares of land, as this would create a population density even worse than Hong Kong’s current most congested area, Kwun Tong, which has a population density of around 57,000 people per square kilometer. Considering the fact that the project will also take decades to complete, it also does not provide a solution to the rapidly rising housing prices in the meantime.
Critics have called into question whether increasing the land supply in projects like “Lantau Tomorrow Vision” is truly the most effective solution to Hong Kong’s current housing crisis. A more effective solution could be to first identify current problematic government policies and systems, including the land sale system, policies that allow for the unsustainable use of land such as the small-house policy, and the lack of legislation that prevents the hoarding of land for profitable gain. The government could then evaluate the impact of each of these contributing factors on the housing crisis and address these issues in order of severity.
I am currently a freshman at USC. I enjoy reading, writing, and playing badminton in my free time. I am particularly interested in behavioural economics and the policy implications of economics.