The Micro-Sized Answer to Hong Kong’s Housing Problem


Hong Kong’s housing prices are already the highest in the world, with second and third places taken out by Sydney and Vancouver respectively. On a basis of median house price to household income ratio though, Hong Kong is the least affordable by far, with an average resident having to save for 18.1 years (without spending on anything else) to buy a small home. And that’s using the median, not mean, income being $50 000. In comparison, Sydney’s is 12 years and London’s is 8.5. That amount of money doesn’t buy you a big home either. With the average living space per person at just 4.6 square metres, the disparity in living conditions between Hong Kong’s rich and poor is painfully visible. But how did this come to be in a city – known for its thriving economy – and sitting on the doorstep of China (the second largest economy in the world)? In short, too much demand and too little demand.

With a government possessing more than £100 billion in fiscal reserves, you’d expect Hong Kong’s housing state to be more stable and sustainable than its current predicament. Indeed, it was a key concern of previous Chief Executive CY Leung since he began office, but he was unable to derive a solution other than to allow the construction of more apartments by the same oligarchy of Hong Kong Property developers, with Sun Hung Kai Properties leading the pack in typical fashion. The new Chief Executive, Carrie Lam, has a different solution. Whereas CY Leung’s policies focussed on curbing demand to cool the city’s property market, Lam’s more familiar relationship with both Hong Kong developers and government officials has prompted expectations for more supply to be introduced. Where more public and private cooperation is needed for mutual benefit, namely in the New Territories farmlands, conversion rates are expected to be higher – with half a million apartments feasibly converted from the farmland owned by just three developers. Henderson Land Development Co., for example, owns 45 million square feet of land in the territory, currently for agricultural use. They are in negotiation with the government to convert the land for residential use.

Hong Kong’s skew toward demand overwhelming supply is explicable by its status as the world’s fourth most densely populated city, with more than seven million residents living across 1106 square kilometres. To give that scope, Sydney (in Australia’s) population density is million in 12367 square kilometres. But this area is not equally distributed, with huge living spaces curated for the upper middle to wealthy class across the area of Hong Kong Island compared to the much smaller in the Kowloon Peninsula. Financially, the incentives to live in Hong Kong are presented by its low tax rates and attractive commercial environment – being a de-facto access point to the most populous country in the world, China. Indeed, many who can afford to live in larger sized apartments are wealthy expats who are sponsored by their companies or leverage the lower tax margins to optimise their purchasing power. These can be seen primarily around Central’s bohemian district Mid-Levels, Stanley and Clear Water Bay.

Adding fuel to the effect of sky high housing prices has been enthusiasm of Chinese mainland developers, who are offered the scarcely available developable land by the Hong Kong government behind the scenes. Visible in online casino domains and offline gambling havens such as Macao, the Chinese are spend-thrifty. This land, as illustrated by the record sale of $2.17 billion for a residential plot exceeded market valuations by nearly 50%. In turn these exorbitant costs are passed on as high prices for buyers for the subsequent apartments built. Sadly, this is widely representative of a trend, driving housing prices up in all other districts. The market for super-luxury apartments costing more than HK $50 million each is dominated by mainland Chinese. In a somewhat relieving way, restrictions of capital outflow from the Chinese government has abated Chinese mainland investing interest, at least for now.

Recent government initiatives have aimed to cool the market. In November 2016, a 15 percent stamp duty was enforced on non first-home buyers to dampen the prevalence of speculation in the property market. This, in conjunction with the increased cost of the US dollar (to which the HK dollar is pegged) was predicted to curb property prices by up to 30 percent in 2017. Logically, this should, as the increasing USD value would lead to rising mortgage rates. However, (in the absence of sufficient regulation by the government) property development companies have been happy to hand out loans, which along with bank loans, have further increased pricing trajectory.

With government initiatives to increase supply whilst making housing prices more affordable, this gave way to the unintended consequence of driving demand for smaller apartments, as developers needed to meet government requirements of achieving supply targets whilst lowering prices for the average buyer. The result? Tiny shoe-box sized ‘micro’ apartments which are affordable, but few would say habitable. These truly humble abodes, accounting for 5% of the city’s newly developed housing in 2010, leaped to 27% in 2016, and are forecasted to rise to 43% in 2018. In an effort to increase home ownership prospects, Carrie Lam has promised to provide government help for people too wealthy for public housing but still without means to afford their own apartment. Whether or not these micro-apartments, sized at 15 square metres, are a sustainable way of living remains to be seen.

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