All land in Hong Kong except the site of St John's Cathedral is held under leasehold and these leases stipulate the uses to which the land can be put.

The Government takes the view that the payment it originally received for granting each lease was only for the use stipulated in that lease and if the holder wants to change the lease to allow a more lucrative use he should pay an extra amount for that privilege.

The basic rule is that this lease conversion premium should be equivalent to the difference between the value of the existing lease and the upgraded one.

The pro argument for this system is that it has worked well in the past and it is only right that the public should get the benefit of more lucrative uses of a public asset.

The counter argument is that it has not worked well, that we live in cramped shoeboxes because the system discourages redevelopment, that it concentrates the development industry in the hands of a few tycoons who manipulate it to make enormous profits and that there are better ways of getting the public its share.

This column does not have space enough for the full debate so let us concentrate on Mr Leung's immediate point.

This is that we should not look so much at redevelopment of existing old buildings, which account for only a small proportion of total new supply, but at how the system has been successful in the past in recycling land from redundant uses into big developments.

These include Mei Foo Sun Chuen (previously an oil depot), Taikoo Shing (a dockyard), Kingswood Villa (a fish farm) and Hong Lok Yuen (an orchard).

But the argument still does not work. We no longer have readily available fish farms, orchards and unused dockyards to redevelop. They have all been redeveloped.

So if it was projects like these that made the system work in the past (and it is debatable whether recycling could take place only under this system) the scarcity of such redundant sites at present is an excellent reason why the system now needs to be changed.

But more to the point, Mr Leung may dismiss redevelopment of existing buildings as constituting only a small proportion of total supply but this is precisely why we have a problem.

The Government has in fact long recognised this, first by setting up a Land Development Corp and now an Urban Renewal Authority to try get more old urban buildings redeveloped.

It is in the built-up urban areas that we now have the real redundant uses. As the chart shows, vacant space in industrial buildings now amounts to more than 20 million square feet. That alone is the equivalent of about 43,000 average sized flats for Hong Kong.

Very few people want the total industrial stock of 190 million square feet for industrial uses any longer. Prices are now well below replacement cost.

But the system we have at present is so poorly suited to recycling this redundant space that we remain woefully short of suitable living accommodation.

In short, Mr Leung's argument works against him. His own examples show that the system is now failing us.