Blog
New Models for a New World: Hong Kong (2017)
Posted August 13, 2020
The COVID-19 pandemic is challenging long-held beliefs in economics and business that people have held for decades. As economies pause and support systems come under strain, returning to "business as usual" looks less possible by the week.
In New Models for a New World, our new series of blog posts, we return to some of our recent project outputs and the lessons they provide for today regarding economic development, sustainability and business opportunities. The COVID-19 pandemic reveals new challenges. GIFT's project outputs provide lessons on how to resolve them.
Until recently, a combination of social solidarity, government regulations and good fortune meant that Hong Kong has been able to avoid the worst of the COVID-19 pandemic. However, as cases increase and social distancing regulations return, the city’s housing inadequacy will become more glaring. Spending weeks in one of Hong Kong’s tiny apartments, let alone one of its subdivided flats, would be unbearable at best, and potentially dangerous and harmful at worst.
Home to a multitude of global firms and high-net-worth individuals, Hong Kong is one of the world’s leading financial centers. It is also one of the world’s most unequal places. The city’s rampant inequality is epitomised by its struggles with housing affordability. Due to high demand, low interest rates and constrained space, Hong Kong has been the world’s most unaffordable housing market for over a decade. The average wait time for public housing is 4.7 years, showing a clear need for a significant increase in housing construction.
The administration of Chief Executive Carrie Lam has pledged to increase the supply of housing units, yet the provision of units is actually set to decrease in the coming years. The government is the city’s biggest landlord: land sales and property-related transactions are the primary contributor to Hong Kong’s public revenues. Thus, there is little incentive to implement measures to cool the property market.
Time for a Rethink: Hong Kong's Housing Crisis
The 2017 Hong Kong Young Leaders Programme tackled one of the city's most salient challenges - the housing crisis- and produced an in-depth report with support from various organisations, ranging from the Hong Kong Housing Authority to Habitat for Humanity. The goal was to develop a long-term solution to the housing crisis. The report took a holistic view of the housing crisis: not just increasing land supply, but also institutional changes, reducing construction costs, conducting market interventions and improving housing quality.
Responsibility for land and housing is currently divided between the Development Bureau and the Transport and Housing Bureau. This leads to confused and misaligned policymaking. The proposal recommended the creation of a new structure, where a dedicated Housing Bureau would manage all departments related to land and housing. This would lead to a more coordinated effort to manage the problem of housing affordability. A “Housing Policy Commission”, filled by a cross-section of society, would act as an independent platform to review the housing situation and oversee policy implementation.
Land supply in Hong Kong tends to be increased through reclamation projects. However, the cohort decided to look at how much land could be unlocked without resorting to reclamation. Hong Kong has a lot of underutilised land, ranging from brownfield sites, private land banks and nearly 200 vacant school premises. Particular interest was paid to the 60 hectares of land reserved for the expansion of Hong Kong Disneyland, and other land from the potential relocation of Kwai Tsing Port and other underused sites. The 2017 proposal found almost 4,400 hectares of land, which could provide roughly 2.9 million units: only 28% of this land would be enough to help meet Hong Kong’s housing target by 2046.
Lower construction costs will also decrease the overall cost of housing. Due to the limited supply of inputs (including labour) and rising wages, Hong Kong has the highest construction costs in Asia, and is second globally only to New York. Training courses to raise the proficiency and profile of construction industry employees, as well as relaxing policies on importing labour, would increase both the quality and quantity of construction labour. In addition, advances in material technologies, such as 3D printing, can also contribute to cost reduction.
The Government has also tried to curb investment demand for housing by imposing stamp duties; unfortunately, these efforts have not halted the increase in housing prices. Hong Kong could take several measures to support first-time home-buyers. For example, removing the stamp duty would reduce transaction costs, thus increasing the supply of second-hand homes on the open market. Broadening housing finance such as flat-rate home loans and home starter loans would help first-time buyers.
Hong Kong, unlike other cities, has not imposed a minimum size for housing units. Around a quarter of a million Hong Kong people live in sub-divided flats, which are not only cramped, but also dangerous: subdivided homes violate fire and building safety standards. The government should provide financial incentives to landlords to improve the safety and hygiene of existing SDUs. The development of a redevelopment fund can help tackle another housing issue - decaying urban areas. A redevelopment fund, which becomes a joint investment scheme by all co-owners of the building, has been successful in buildings such as K11 and Lechler Court.
The right to adequate housing, inscribed within the United Nations Declaration of Human Rights, is recognised as absolute. Continued inability to resolve this issue is a failure of governance, and risks further angering a discontent public. With a $68 billion surplus, Hong Kong can afford any short-term hit to revenue, provided that it plans ahead and rethinks its revenue target in light of its mandate to meet society’s basic needs. Offering a solution to Hong Kong’s greatest social concern could be the Government’s most effective mechanism to address the public’s frustration.
