Every year, for the past several years, Hong Kong has had the dubious distinction of topping the international league table for the least affordable housing. The latest report from Demographia, which looks at housing costs in 406 cities worldwide, showed that in terms of affordability, Hong Kong not only tops the world league but does so by a considerable margin.
The value of this survey is that it does not look just at property prices but compares average prices with median household incomes, giving a more accurate impression of affordability.
By this measure, the average Hong Kong person is faced with paying over 18 times a whole household’s annual income to buy a property. This is, for example, double the level required in San Francisco.
The real reason for this is not, as the government likes to pretend, that Hong Kong suffers from a land shortage but that the government itself is to blame for policies favoring property developers in outrageous ways.
In order to perpetuate the myth that land shortage is the main barrier to affordable housing, the Leung administration, in its dying days, is doing all it can to “solve” the land shortage problem by identifying parts of the country parks that can be used for housing development.
Clearly, CY Leung and his associates have no shame in this matter because they are seeking a solution that involves destroying one of Hong Kong’s most valuable assets – the country parks, which provide the green lung that helps the city breath and have endowed the SAR with a priceless asset. Once lost, this space will never be recovered.
There is plenty of land available on so-called brown field sites but, as we have seen, acquiring these sites often involves really tough negotiations with powerful rural barons, who the government is very reluctant to confront.
But even this is not the real issue as the root of the housing problem, which the government prefers to describe as a land shortage, is the way that successive governments have created a system of land disposal that favors large property developers’ consortia.
These consortia used to be made up of the big local players but now the land auctions are increasingly joined by mainland companies desperate to get their money out of the mainland. They are willing to pay increasingly crazy sums of money at these auctions.
The auction system, despite denials to the contrary, was designed to provide land for the big developers because only they had the resources to buy up the large prime sites and develop them.
This resulted in a property cartel not only having more or less exclusive access to the best development land but put them in a position to determine its price because when they thought the government was getting too ambitious in its pricing, they would simply withdraw from the auctions.
As the sites were so large, there was no one else to come in and take their place. Thereafter, these companies were able to control the property market.
The auctions have become a major source of government revenue and the cosy relationship between the bureaucrats and the property developers has worked smoothly, so smoothly that a high percentage of bureaucrats working on land issues move rapidly in retirement to work for the property companies.
The problem is that land also provides a social purpose and while the government was fixated on balancing its budget by way of land sales, the pressing housing needs of the bulk of the population were overlooked.
The only way of preventing the housing crisis turning really nasty was to develop a wide-scale public housing program. However, as living standards rose, the basic facilities of public housing failed to satisfy many tenants. And shortfalls in the supply of public housing left many low-income families waiting to be housed.
If the government were prepared to expand opportunities for public housing tenants anxious to upgrade their living standards and to secure an investment in the shape of a property they would also increase space in the public housing sector.
However, prices for even quite modest private housing have reached a level way out of range for the average working person. The only way to bridge this gap has been provided by the Home Ownership Scheme but it remains way too small to satisfy demand and its expansion is constrained by the government’s determination to keep supplying land to the property developers.
The solution is not to destroy Hong Kong’s truly remarkable natural environment but to immediately switch priorities in the allocation of land away from the developers.
One consequence of shifting land allocation priorities will be to increase prices in the private sector, which will be good news for existing property owners but will not be bad news for those who currently cannot even dream of clambering aboard the property ladder. Unless something better comes up, the only way for them to become property owners is through the Home Ownership Scheme.
Meanwhile, the government fiddles around with property stamp duties, tries to put the blame on legislators for its failure to meet home supply targets and substitutes misleading propaganda campaigns for action to tackle the growing housing scandal.
If the government were to get serious about tackling the housing scandal, it would have to take on the property developers’ cartel… don’t hold you breath.
– Contact us at [email protected]