Hong Kong housing

How to build more affordable housing in Hong Kong: just give developers a financial incentive

Bernard Chan says the government can strike a deal with private developers to unlock land in the New Territories in an open and transparent manner that benefits Hongkongers

PUBLISHED : Thursday, 10 May, 2018, 11:22am
UPDATED : Thursday, 10 May, 2018, 7:44pm

The government’s task force on land supply launched its public engagement exercise on April 26. Over a five-month period, the public can comment and make suggestions on a wide range of options – 18 in total. 

The problem is that nearly every single option is likely to face some sort of objection or opposition. The really large-scale proposals often attract the biggest resistance. 

In many cases, I believe the opposition is to some extent valid. 

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For example, just a small amount of our country park areas could provide lots of space for housing. But many people hate the idea of touching a single inch of the country parks. I can understand their fears – if we start eating away at country parks, where would it end? 

Many people, perhaps including country park fans, also oppose the idea of reclamation. Some say it is environmentally damaging, while others say it is too expensive. Some say it is only a very long-term option when our land needs are more immediate. This last point is certainly true. 

But if we carry on saying “no”, we end up getting nowhere. 

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One other major and relatively straightforward potential source of space is the agricultural land held by developers in the New Territories. The task force proposes looking into some sort of public-private partnership to develop public housing on at least 1,000 hectares of such land. 

Without cooperation between public authorities and private landowners, the land will sit idle and benefit no one

In essence, the government would provide the necessary infrastructure and reduce the usual land premiums, and in return the developers would include some social housing. This principle is used in many countries. 

However, this proposal has provoked another major negative response – this time claiming it would lead to “collusion”. 

In other words, people automatically assume that the government would deliberately favour the developers in any sort of arrangement. At the very least, people assume that the developers will outsmart officials. Either way, there are widespread suspicions that the developers will grab all the benefits and the public will lose out. 

Yet, without cooperation between public authorities and private landowners, the land will sit idle and benefit no one. 

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It was not always like this. 

If we look back several decades, Hong Kong property developers produced large amounts of affordable housing aimed at the ordinary local middle class. Estates like Whampoa Garden, City One Sha Tin and Kornhill are just a few examples. The developers made decent profits from these mass-market estates, but no one saw the projects as collusion. 

The basic equation is that the private sector is allowed to make a fair profit out of satisfying a social need

There are various reasons why things have changed. The developers argue that the government charges such high land premiums today that it is not economically viable for them to build old-style affordable housing. Officials argue that if they lower the land premiums, developers will just grab higher profits – and that would be collusion. 

The land supply task force specifically mentions partnerships in which the developers build a percentage of public housing. In theory, such arrangements could be used to boost the supply of any affordable housing. And the same principle could be used to let smaller New Territories landowners profit from using brownfield sites for housing. 

The basic equation is that the private sector is allowed to make a fair profit out of satisfying a social need. This is, by the way, management guru Peter Drucker’s definition of the role of business. 

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It should not be difficult to devise a formula that gives landowners a financial incentive to build affordable homes. 

I expect my own opinions here will be criticised for being pro-developer and pro-collusion. At least, some people will accuse me of being naive for thinking the developers will play along. 

The developers are not popular these days, and many people want the government to use its “big sword” and acquire the land through the compulsory land resumption process. 

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As the chief executive herself has said, this could be more time-consuming and legally problematic than it is worth. We could also add that private-sector developers can probably build a lot faster than the government. There are quicker ways to induce landowners to cooperate. 

This private-public approach could be the most practical and effective of all the task force’s options. Yet politicians from different parties, activists and it seems much of the public are clearly sceptical – and it looks like once again we are saying “no”. 

The word “collusion” implies secrecy and unfairness. Surely we can find a process that is open and accountable – and that clears the way to badly needed large-scale housing supply.

Bernard Chan is convenor of Hong Kong’s Executive Council