I recently read an American magazine article about O’ahu.
O’ahu is the most populous island in Hawaii – the island that includes Honolulu and landmarks like Pearl Harbor and Waikiki Beach.
A heading in the article jumped out at me.
It said, “Why is there a perpetual housing shortage?”
The writer explained the growing amount of overseas money going into real estate on the island.
A large and growing amount of this investment (in deals worth US$1 million or more) comes from Asia, notably Japan, mainland China, Hong Kong and South Korea.
This article was just the latest I had seen from around the world.
The London and New York property markets are relatively old stories.
San Francisco has become famous for its housing costs, driven especially by growth in the local tech industry and restrictions on development.
Recent stories on this theme cover several other cities.
In Sydney, residents complain that Chinese investors are pushing up prices, even though rules restrict property ownership by foreigners.
In Auckland, where prices have been rising strongly, there are fears of a bubble.
In Berlin, rising home prices are threatening start-ups and cultural activities that made the city trendy.
Singapore has increased stamp duty and taken other measures to try to curb price rises, which are creating public concern.
Just a few weeks ago, a Hong Kong newspaper had an article saying, “Something is grotesquely wrong about Vancouver’s housing market”.
The price-income ratio of homes in Vancouver has reached 10.6 – meaning median home prices equal 10.6 years’ median household income.
This affordability index must be treated with care.
It does not factor in the impact of interest rates, taxes, transport costs or the availability of subsidized homes for the less well-off.
Some critics say that in some markets, it gives too much weight to certain types of homes (such as houses rather than condos) and thus exaggerates the situation.
But the data is consistent, and it shows that for decades in the past, housing typically had an affordability index of 2 to 3.
Things have changed.
Singapore today has an index of about 5.
London, San Francisco and Sydney are in the 8-10 range.
Even that seems cheap compared with Hong Kong, where the index is 17.
All these cities have certain things in common.
They are successful places where many people want to live, and for various planning and regulatory reasons, the supply of land and housing has fallen behind.
Globally, low interest rates have pushed money into real estate, and certain cities seem especially popular among particular cross-border investors from China, Russia and elsewhere.
Rising interest rates may help ease the problem in the medium term, but probably not enough to make up for the longer-term shortage of supply.
So what is likely to happen?
Policymakers and the community – especially perhaps in Hong Kong – will face some very difficult choices.
Obviously, it is impossible – or very risky – for a typical young family to commit 17 years’ future earnings to buying a home.
Even if we allow for subsidized housing and low income taxes and transport costs, housing affordability in Hong Kong has become a major problem.
It is the single most important reason behind the discontent we see among the young.
Failure to do anything about it could ultimately threaten the legitimacy of the government.
Rather than attempt to find one solution, future policymakers may find it more effective to put every possibility on the table.
That includes considering the use of greenbelt land or reclamation outside the harbor.
But it should also include re-examining cross-boundary living and commuting, regulatory issues affecting building design and urban planning, and how we treat offshore ownership and the use of property as an investment asset.
It does not mean that we have to use any one or two specific bold or radical approaches.
But it does mean that everyone should recognize that some sort of sacrifices will be necessary to solve the core problem.
Only by looking at all possible options – with nothing ruled out – can we agree on priorities and real solutions.
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