An imminent private housing supply chasm and its solutions

Ryan Ip Man-ki, Jason Leung Yeuk Ho June 24, 2022 09:27

As the 5th wave of Covid-19 gradually subsides, waves of new private housing projects are now under the spotlight. Intensifying competition among developers became the talk of the town after a quarter of muted activity. Amidst the fervent market atmosphere, it shows that previous efforts in sourcing land for housing construction have begun to pay off. Upon closer scrutiny, however, this is merely the result of the Government’s stopgap measure of swiftly consuming existing spade-ready sites. We have recently released the Annual 10-Year Housing Supply Forecast, and it is predicted that uncertainties will continue to exist over the 10-year horizon.

Short-term supply surge thanks to previous efforts

Despite the drop in private housing completions in 2021 due to COVID-19, we estimate that the average annual private housing completions in the coming 5 years will be 17,300 units, roughly on-par with that of the previous 5 years and evidently more than 2007-2016 when the figure averaged 10,900 units per annum. The estimated surge is attributed to the improvement shown in various leading indicators of the private housing development cycle vis-à-vis the past 3 years: (i) For pre-sale consent, the number of units pending approval reached its 2-decade high in March 2022. (ii) Regarding construction works, the number of superstructure commencements in 2021 surged 202% year-on-year. (iii) Concerning land supply, the estimated number of private housing units provided at spade-ready sites in 2021/22 reached a 4-year high.

Nevertheless, the rebound in 2021/22 was significantly contributed by the reduced average flat size of a large-scale private housing project in Shap Sze Heung. As no additional land supply was involved, it was only an “illusional” rebound. Ever since the Government’s revision of the public/private housing split from 60:40 to 70:30 in the Long Term Housing Strategy target in 2018, private housing land supply has nosedived and has yet to recover. The impact on private housing completions is expected to kick in from 2025 onwards. Thus, even if private housing completions could reach a relatively high level in the short run, such a favourable trend might not be sustained.

Further breakdown of the private housing land supply by land source reveals the challenge regarding future completions. Government-controlled land supply, including Government land sale, railway projects and Urban Renewal Authority projects, has been diminishing in recent years. From a peak at around 90% of total private housing land supply in 2013/14 and over 80% in the 3 subsequent years, it dipped to merely 28% in 2021/22. As private developers have been more proactive in tapping into their land bank, the impact of the recent decline in Government-controlled land supply is partly offset, thus delaying the drop in private housing completions.

Medium-term supply undermined by spade-ready site depletion

Furthermore, we anticipate that the private housing land supply in 2022-2026 would decline vis-à-vis the previous 5 years, which will undermine private housing completions in the coming 6-10 years (2027-2031).

With spade-ready government sites nearing depletion, the Government has been relying on Kai Tak New Development Area (NDA) as the major source of private housing land supply, but it will soon be used up too. As for the other NDAs in the New Territories, the major portion of private housing land supply often comes at the later development phases. For instance, in Hung Shui Kiu/Ha Tsuen NDA, most of the private housing land supply is arranged for phases 2 and 3. We expect that private housing land supply will rise significantly not until 2027. This leaves the Tung Chung New Town Extension as the only NDA that can provide a substantial amount of land for private housing development in 2022-2027.

Akin to Government land sale, spade-ready private housing land supply from railway land bank have been rapidly expended in recent years and are close to exhaustion. Meanwhile, most future railway land bank is still in the early development stage and would not translate into spade-ready sites in the short run. With Siu Ho Wan Depot Topside Development Phase 1 Package 1 already included in the 2022/23 Land Sale Programme, some may reckon that the depot should be counted as spade-ready. However, it was not intended for topside property development when it was constructed. Thus, substantial property enabling works are needed. Given the complexity and time required for construction works in an operating depot, there is huge uncertainty as to whether it can be regarded as a spade-ready site. As a prudent approach, we have therefore excluded it from consideration. Other currently known impending railway land bank supply is still at the early development stage and can only be converted into spade-ready sites beyond 2027.

Expediting the NDAs to avoid the supply chasm

While the Government still possesses land bank outside the NDAs, coupled with land rezoned from other uses, it is expected that there will be a private housing supply chasm before the private housing land major supply boost from the other NDAs arrive. Hence, the key to increasing supply lies in expediting and bringing forward the supply boost from the NDAs to plug the gap. Meanwhile, speeding up infrastructure projects in the NDAs will also help to unleash the development potential of private land bank and further increase private housing supply.

We are pleased to see that the Development Bureau proposed amending 5 ordinances in March 2022 to expedite the statutory process for land development with extensive adoption of OHKF’s recommendations. The manifesto of the new-term Government has also mentioned streamlining procedures, enhancing coordination, diversifying development and prioritising infrastructure to step up housing supply. OHKF welcomes such initiatives and hopes to see timely implementation of these measures.

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Ryan Ip Man-ki, Jason Leung Yeuk Ho

Ryan Ip Man-ki is Head of Land and Housing Research, and Jason Leung Yeuk Ho is Researcher at Our Hong Kong Foundation.