Hong Kong's profit-driven urban renewal policy needs a rethink

Three years ago, the Urban Renewal Authority announced a new "demand-led" strategy for urban renewal. Now, the strategy has stalled. Because of the unprofitability of small projects, the authority recently announced that it would no longer accept applications on sites smaller than 600-800 square metres.

While the authority has said that it will devote more effort to facilitating agreements between owners and private developers, this does not answer the question of how those developers would make a profit, when the authority itself - which is tax and land-premium exempt - cannot.

There is a fundamental flaw in Hong Kong's urban renewal policy. While the authority's stated mission is "to address the problem of urban decay and to improve the living conditions of residents in dilapidated urban areas", its powers and financing mechanisms under the Urban Renewal Authority Ordinance render these goals secondary to the objectives of buying and selling property.

The authority was set up as a machine for buying up old buildings using compulsory purchase powers, transferring the land to developers premium-free, sharing in the profits, then ploughing the money into the next project.

While it does carry out programmes of building rehabilitation, district revitalisation and heritage preservation, these are basically the icing on the property development cake. The sum it has earmarked for building rehabilitation amounts to about HK$260 million every year, which is less than what it spends on administrative expenses. Also, out of its total assets of nearly HK$32 billion last year, the total value of building rehabilitation loans on its books was only HK$65 million.

The results reflect this. Most of its completed projects end up as bland, luxury high-rises that push out small businesses and disperse residents, with a small area provided for sitting outside, or a few restored shop houses as an afterthought.