The Hong Kong Housing Problem

Hong Kong has been ranked as the most expensive city to live in. Survey after survey has found that the housing prices in Hong Kong are simply unaffordable. On an average, the median income to housing price ratio is more than 18. This means that a person would have to save for 18 years straight to buy a house, that too if they did not spend anything on food, clothing, healthcare or any other necessities. The end result is that it has become impossible for a first generation homeowner to actually afford a house in Hong Kong City. In this article, we will have a closer look at some of the important factors that have resulted in the creation of this housing problem.

• Population Density: Hong Kong is one of the most densely populated cities on earth. The per square kilometer density is more than 7000. This is amongst the highest in the world. Also, since Hong Kong is the gateway to China i.e. the most populous country in the world. As a result, it gets a lot of immigrants from mainland China as well as from other countries. The city has limited availability of land. It is made up of 200 islands, many of which are not inhabitable. Given the increasing number of immigrants, it is impossible for Hong Kong to be able to accommodate its immigrants.
• Green Spaces: Land in Hong Kong is already scarce. On top of that the government has enacted policies which make the availability of land even scarcer.

  More than 40% of the city’s land has been locked up for parks and green spaces. A lot of land is also locked up because it houses historical sites. As a result, only about 7% of the city’s land is actually being used for residential purpose.

  The citizens of Hong Kong have been pressurizing the government to open up more land for residential developments. However, developers have also been pressurizing the government. If the government increases the supply of land too much, prices will crash and the developers might end up losing money in the process.

• Government Tendering Process: The city of Hong Kong opens up few parcels of land for sale every year. The city follows a very opaque behind the scenes tendering process. As per this tendering process, land is sold to the highest bidder. Since the land is scarce and the date of next sale is not known, developers bid an absurd amount of money to buy development rights to a plot. This in turn translates into very high prices for the end user.

  In a way, the government is a major beneficiary of these sky high prices. Also, the bids are often won by wealthy developers from mainland China.

  In 2013, these developers accounted for less than 10% of the land sales happening in Hong Kong. However, now they win more than 40% of all the bids. Since these developers have deep pockets and they try to outbid each other, they end up raising the price of land to record highs.

The local politicians have been under pressure from the common people to lower the prices. As a result, the government has reserved more than 50% of the developable land. The government gives out these apartments to lower income group people. Some of these apartments are leased out whereas others are sold by the government. However, the problem of housing in Hong Kong is larger than what can be solved by subsidized housing being provided by the government.

• Tax Revenue: Hong Kong receives large amounts of foreign capital. It is also one of the biggest financial hubs in the world. All this has been made possible by the very friendly tax regime that the island follows.

  The rates of personal and corporate taxation are very low. This attracts corporations and their high earning executives to Hong Kong city. However, Hong Kong is able to afford these low rates because of the high prices of land.

  The government earns most of its revenue through land sales. This is the reason why they do not require revenue from tax. However, if the housing prices were decreased, Hong Kong would have to raise taxes. This would not be acceptable to many corporations who may want to move out of the city. This is the reason why the government is not taking serious measures to reduce the price of land. Given a choice between higher taxes and higher price of land, the government has chosen to protect taxation and corporate interests.

• Overseas Capital: Lastly, a lot of houses in Hong Kong are not being bought by the local inhabitants. Instead, the property market has become a hotbed of speculators from all across the globe.

  Since the property market has showing a rising trend in the past, many foreign investors want to park their money in this asset class. This is the reason why the apartments get sold despite having these mind-numbing valuations. Owning a house in Hong Kong is not the prerogative of the average citizen. It is only the super-rich that can afford these houses.

  The bottom line is that the houses in Hong Kong are so expensive that a castle can be bought for the same price in many parts of the world. The average people of Hong Kong are facing a severe shortage of comfortable houses, and this crisis does not seem to have an end in sight.

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The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.