The possibility of lifting 40-year-old restrictions on property development in Pok Fu Lam and Mid-Levels is one of several controversial measures Leung Chun-ying floated to increase the supply of land and housing.
The measures are essential for the city to fulfil its long-term land needs, the chief executive argued in his maiden policy address.
They include building artificial islands west of Hong Kong Island, asking private developers to build public housing and developing yet another new town in the northern New Territories.
"We're actively considering relaxing or lifting a moratorium... currently in force to restrict the sale of new land or modification to leases in Pok Fu Lam and Mid-Levels, so as to lift development restrictions in these two areas," Leung said.
The moratoriums were introduced as an administrative measure in the 1970s to control traffic in the two areas. They prohibit new land sales or the redevelopment of private buildings on a larger scale without the Executive Council's approval.
A government source explained that such a relaxation would be made possible by traffic improvements, the completion of the MTR West Island and South Island lines and the future Central-Wan Chai bypass.
If the policy is lifted, some government-owned sites near Wah Fu Estate and Chi Fu Fa Yuen in Pok Fu Lam could be put on sale for development to ease the shortage of urban land, the source said.
But concern has focused more on the densely developed Mid-Levels than on Pok Fu Lam.
According to government documents from 2010, the moratorium there restricts development of 47 of the 420 plots of land in Mid-Levels, mostly due to lease conditions. Leases for other plots have no restrictions.
Albert Lai Kwong-tak, convenor of the policy committee of the lobby group The Professional Commons, said lifting the restrictions could harm Mid-Levels as it would speed up the redevelopment of old buildings around Caine Road, Bonham Road and Robinson Road.
"Adding ever taller buildings on the hills will degrade the environment and pose a bigger landslide risk," Lai said. "I don't see how releasing land in this luxury neighbourhood would help address the more urgent housing problem of the grass roots."
Surveyor Charles Chan Chiu-kwok, managing director at Savills Valuation and Professional Services, said it was "very difficult" to see further development in Mid-Levels, given that the roads and the traffic situation had not improved much in the last few decades.
He said another obstacle for developers would be negotiating the land premium they would have to pay the government, which can take two to three years.
Another idea is to invite private developers to construct public rental housing - something that has never happened before.
On four sites, including the former Tai Hom Village in Diamond Hill and the Anderson Road Quarry in East Kowloon, developers granted land to build private homes would be charged with building public housing and community facilities. Leung said the initiative would speed up the delivery of flats as private developers could build them faster.
Marco Wu Moon-hoi, a former deputy director of housing, said incentives such as discounts on land premiums might have to be given to developers to provide public housing. He said a transparent mechanism should be in place to ensure developers do not cut corners in building public flats that would bring no profit.
But Lai warned any incentive would have to be handled carefully to avoid accusations of collusion between the government and developers.
Chew Fook Aun, deputy chairman of Lai Sun Development, said the firm would study the potential of the four sites "but the valuation will be affected by including public housing".
SOCAM Development, chaired by Leung Chun-ying supporter Vincent Lo Hong-sui, said it had participated in the public housing sector by building government-subsidised homes for sale through its construction arm since the 1970s.
"SOCAM will continue to contribute its professional expertise in the building of public housing and projects for society," the company said.
The drive to increase land supply goes beyond urban areas - stretching to the sea, with the suggestion that several artificial islands be built in the waters between Hong Kong Island and Lantau, with a total area of between 1,400 and 2,400 hectares. The idea is bound to be controversial; greens have long opposed reclamation outside Victoria Harbour, while residents of developments such as Discovery Bay are unlikely to welcome big building works on their doorstep.
Leung had less to say about subsidised housing, apart from the widely expected announcement that four sites earmarked for the rent-or-buy My Home Purchase Plan will instead yield 2,000 subsidised flats for the Home Ownership Scheme, available for sale to households earning under HK$40,000 a month.
A government source said the administration would earmark some sites in its land reserve to build HOS flats if necessary.
Widespread expectations that Leung would immediately increase the annual target for public rental flat construction from the present 15,000 to 20,000 proved false - the higher target will only take effect in 2018, the year after Leung's term expires. Officials said raising the target was difficult due to a lack of land.
Asked after the speech why he had not gone further, Leung said: "I can put my hand on my heart and say the administration's main emphasis is on housing … if me and my team did not have vision, determination and commitment, you wouldn't have seen the achievements we made in the last six months."
Leung's message did go down well with people selling homes - many of whom marked up prices.
Property agency Centaline said one seller increased the asking price of his flat in South Horizon, Ap Lei Chau, by 8.3 per cent, from HK$7.2 million to HK$7.8 million.