Hong Kong’s land supply has little to do with sky-high housing prices
Taking into account factors such as population growth and household size, the conclusion drawn is that Hong Kong does not have a land shortage, only an affordability problem
Are we short of suitable development land in Hong Kong: True or false?
Let’s start by looking at the relationship between our population figures past and present, and how that has been translated into demand, and then supply of housing. The figures quoted here are from official government sources, principally the Census & Statistics Department and Rating and Valuation Department.
By mid-year 2015 Hong Kong’s population was slightly over 7.3 million. By end of September 2015 there were 2.726 million permanent living quarters of all types in Hong Kong, which gives you an average household size of 2.68. If you allow for, say, a 4 per cent vacancy rate this figure would come up to 2.8.
The current stated average household size is given at 2.9, so on these figures alone you could argue that there already is, broadly speaking, a balance between supply and demand.
A full census is carried out every 10 years. In 2001, the population stood at 6.708 million which grew to 7.072 million in 2011 – an increase of 364,000 or 36,400 people per annum.
The growth from 2011 to 7.3 million equates to an increase of 252,000 over a 4 year period, or 63 000 per annum.
Looking back at the periods of rapid growth in Hong Kong’s population with mass migration from China, for the years 1971-81 we grew at 100,000 per annum and from 1981-2001 at 80 000 per annum.
Why do these figures matter?
The Long Term Housing Strategy now has a target of providing 460,000 new flats by 2025/26.
By that time the predicted average household size is expected to be 2.8. If you multiply these two figures together it gives you a predicted population growth of 1.288 million, or an unprecedented 128,000 people per annum, which is twice the current growth figure and would result in 8.6 million total – which is greater than the Census and Statistics estimate for 2041!
Census and Statistics is, in fact, predicting a more realistic population of 7.8 million by 2024. Given our ageing population, increased divorce rates, delay in younger people getting married, and often not wanting any children, Hong Kong is more likely to mirror Japan’s declining population pattern rather than see any massive increases.
Therefore the 7.8 million figure is much more realistic and should be used as the yardstick for planning housing production with the consequential much lower requirements for land supply.
Personally I do not think the present housing situation is as dire as some legislators and the media would have us believe.
Today public rental housing (PRH) houses 28.8 per cent of our population with another 14.6 per cent in subsidised sale flats, leaving a majority of 56.6 per cent in private permanent quarters, with over half of these fully owned without mortgages.
The CE’s 2016 policy address has committed the Housing Authority and Housing Society to produce, in the coming five years, another 76,700 PRH and 20,400 subsidised flats. This is where government should be focusing its land supply efforts.
My own interpretation of the statistics of housing quarters versus average household size is that we do not have a housing shortage. So what is going on? The answer: It is all about affordability.
Secretary for Development Paul Chan agrees, saying last month “we believe the housing demand
remains large, and that home prices remain at a level not easily affordable by the general public... the market will, hopefully, gradually achieve the right balance between supply and demand.”
Again, the statistics do not bear out Chan’s assumptions as to the state of the market.
In the private sector from 2009-2014 a total of 64,133 units were completed; an average of 10 689 per annum, while during the same period 62,650 units, at an average of 10,441 a year, were taken up.
Taken together with an overall vacancy rate of 4 per cent, this indicates to me that in the private sector a broad balance already exists between supply and demand.
Research carried out by my HKU colleague Dr L.H. Li looked at land supply and the housing market. Li’s team studied government land sales over a 25 year period from the start of 1987 until the end of 2012.
During this time there was an ample supply of land auctioned for sale in the first part of the study period up until 1997, at an average of around 20 hectares per annum. There was a hiatus between 1998 and 2004 , followed by a very restricted supply of land for the remainder of the study period while the Land Application System was in place, when as little as 5 hectares per annum was sold.
The analysis clearly showed that throughout the 25 year period of the study the level of land supply from government sales did not have any impact on house prices. Interestingly, during the period of the Application System when house prices went up, more land was triggered for sale but prices did not come down.
Li’s data went on to show that Hong Kong people only buy property when the price is going up but refrain from being homeowners when prices are going down.
Historically, and currently, the only time major corrections to house prices occur is in response to external economic factors not internal ones. You only need to look back at the impact on Hong Kong of the Thai-baht induced Asian Financial crisis of 1998 that was further compounded by Sars up to 2003, when the residential price index dropped from 180 to 60 and the impact of the Lehman Brothers collapse in 2008/9 when the same index dropped from 125 to 100.
Today we have seen this index go as high as 300 by the third quarter of 2015 but it has now retreated to 270 in response to the impact on the world’s financial markets of China’s economy growing at the slowest rate in 25 years as it attempts to transition from an export-led nation to one led by consumption and services.
As the IMF says, China faces an “overwhelming agenda” of structural reform that will take time to implement, and with Moody’s downgrading the outlook for both China and Hong Kong from “stable” to “negative” on the back of China’s February export figures slumping by 25 per cent, I doubt anyone will be banking on a meaningful recovery any time soon.
My own view is that these ongoing external influences will continue to result in further corrections in house prices to the extent that the urgency for government to find huge amounts of land for sale will be greatly reduced, particularly if you agree with my predictions on population growth.
On the question of affordability, the Housing Authority/government should consider building a higher percentage of subsidised flats for sale to help first time buyers get onto the housing ladder.
As for the private sector, three of the major property development companies have between them over 90 million square feet in their land banks as overall in the New Territories there are some 4,000 hectares of agricultural land, only 15 per cent of which is being actively farmed with the rest lying fallow.
Add to this the vast areas of brownfield sites, some of which could be rezoned, and the answer to the question posed at the start of this article is “False.”
Roger Nissim is an adjunct professor of the department of real estate and construction at the University of Hong Kong