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Jake Van Der Kamp

'Homebuyers are smart. They know not to enter the market when prices are high and rising.'

Donald Tsang Yam-kuen

Chief Executive

YOU WOULD THINK someone who spent a few years as financial secretary might learn to appreciate the value of hard statistics. It is an office that appears to have had the opposite effect, however.

Dead wrong, Donald. If there is one time that Hong Kong people do not put on their thinking caps, it is when they become homebuyers.

As the first chart indicates, they enter the market when prices are high and rising and get out when prices are low and falling. Comfort yourself that it is not Hong Kong people alone who do this. It happens all around the world.

But, in these matters of the property market, let us deal with the more significant thoughts of our Chief Executive in comments to lawmakers following his policy address. He believes that rising prices of flats do not indicate a shortage of land on the market. Here is another quote from him.

'Housing prices are still relatively low compared with 1997. I'm not saying that I support higher prices, but much of the soaring prices refer to luxury properties, and they only affect the very wealthy and not the typical homebuyer.'

Not quite. In the first place, the frothiest excess of a property bubble hardly constitutes a good benchmark for comparison with the present level of the property market. Prices may still be relatively low compared with 1997, but they are not much lower on average than they were in 1995 and in some categories, they are now higher.

It is true that luxury homes are far pricier per square foot than modest ones are and that they have risen more in price since the worst of the Sars crisis in 2003. The prices of modest ones, however, have also risen substantially.

In the single largest category, flats between 40 and 70 square metres in gross floor area, prices have risen about 55 per cent since the middle of  2003. This is no small increase for a two-year period, even by Hong Kong standards. Methinks Mr Tsang is a little offhand in dismissing it so lightly as an indication of a shortage in housing supply.

But we need not look at price alone as an indicator of whether we are heading for a shortage. There are much better and more direct indicators in statistics the government  publishes regularly on construction of new residential space. They all say that new supply is headed sharply down.

The second chart refers to one of them. It takes authorisations to begin work on new flats, both in the public and private sectors, and then sets  these against gross domestic product in constant price terms.

Pardon me if that seems more than a fair mouthful of definition. Let me make it simpler. What the chart says is that if in 1985 we approved starting work on about 15 new flats for any given amount of economic output, the figure as of June this year was only one flat for the same amount of output.

In other words again, we are putting less than 7 per cent as much effort into new housing as we did 20 years ago relative to our wealth.

Looking at it still another way, the present rate at which we are authorising construction work on housing will mean new housing supply in three years' time of only one-third of the present level.

I admit there could be good reasons for a decline in these authorisations compared with 1985. Back then, we were still playing catch-up with the need to get squatters into decent housing and  had a greater proportion of our population buying or renting their homes for the first time. In recent years, we also had the obvious aftermath of the 1997 property bubble and crash to deal with.

But think again of the scale by which these figures on housing authorisations have come down. None of these good reasons are good enough to explain more than a small part of this decline.

Whatever the reason for it, Mr Tsang, you may be wisest not to ignore it. An impending housing shortage does seem in the cards.

jake.vanderkamp@scmp.com



Housing starts, not rising prices, signal looming supply shortage