The ViewWhy divorce and remarriage rates matter for housing demand in Hong Kong

The prices of small housing units are showing signs of moving up again, suggesting that underlying demand is still strong. Home prices in Hong Kong have escalated since the 1980s not only because of regulatory inertia that is slowing down new supply but also because both the government and the market have underestimated demand growth.

A commonly used measure of the gap between home demand and supply is the "degree of sharing", the inverse of the ratio of permanent housing units to domestic households. The ratio was 0.79 in 1971 and rose steadily to 1.09 in 1991 (see the first chart). It has since remained within the range of 1.08 to 1.12 despite considerable variations in supply and demand conditions.

The very low ratios before 1991 were the result of the massive influx of immigrants that entered Hong Kong between 1945 and 1951, causing the population to rise from 600,000 to 2.3 million. Multiple families were often crammed into a single domestic premises. Housing construction targets in the wake of that influx aimed to raise the ratio to above one and allow some margin for turnover.

Given that this target was reached in the early 1990s and has remained stable, one could conclude there is no housing shortage as the "degree of sharing" has not worsened!

Unfortunately, the "degree of sharing" has ceased to be a good indicator of a housing shortage for two reasons. First, from the 1990s, the divorce rate in Hong Kong began to climb and increased more than threefold from 6,295 in 1991 to reach 21,125 in 2012 (see second chart). Divorce became a driver of housing demand as ex-partners moved out into new homes.

Most of those who divorce are from low-income households. This has fuelled the demand for "subdivided" housing units concentrated in older buildings in the old urban areas. As units have become subdivided, the supply of whole units has reduced and contributed to housing market tightness.

Unlike divorced women, many divorced men remarry as their prospects are brighter. Between 1991 and 2012, the number of remarriages rose from 4,892 to 19,542. In 2012, remarriages constituted 32.4 per cent of all marriages registered in Hong Kong (total registered marriages were 60,383, of which 40,841 were first marriages).