Taking stock: how the Hong Kong government can deliver more affordable housing
Combination of approaches – rezoning, reclamation outside Victoria Harbour, utilisation of brownfield sites and abandoned agricultural land, revitalisation of old neighbourhoods – should be considered over long-term possibilities like filling in reservoirs and moving the container port at Kwai Chung
At the beginning of the year, it is timely to take stock of progress over the past 12 months and to identify and prioritise the challenges and issues that need to be addressed in the year ahead. None more so than in the case of the Hong Kong property sector, and in particular, the residential market, regarded by many as the ultimate barometer of the health of the wider economy.
Obviously, 2017 was much influenced by the changing of the guard – the election of a new Chief Executive and the appointment of a new team of ministers and leadership within the Hong Kong administration. Much was promised in terms of providing a much wider, affordable level of housing for those looking either to climb onto or move up the housing ladder, as well as to increase mobility within the subsidised housing sector and to reduce waiting times for public housing, which is now typically just over four years.
It was carefully explained that there was no magic bullet and that the ultimate solution was one of more supply. To address that challenge, a whole raft of new sites/opportunities would need to be identified. It was tacitly accepted that the stamp duty measures introduced previously with the intention of calming the market had only had a marginal impact and some would argue had led to further price escalation. Nonetheless, with the assurances given about the priority to be given to the housing issue and an acceptance by the new CE that this would require both brave decisions and leadership, most in the community were prepared to give the new administration time to demonstrate that it had the ability to deliver.
So where are we at the beginning of 2018? If we start by focusing on new supply in the private sector, some 18,500 new units were sold in 2017, which is better than 2016 but still short of the average of 20,000 units that will be required if the government is to meet its annual housing strategy target – and don’t forget, we are having to play catch up on new supply, building up from a low of 14,000. At the same time, we have seen prices of new units increase by anything between 13 to 15 per cent after discounts with affordability for those seeking to enter the market becoming even more taxing than before. In addition, developer finance and incentives continue to mask the reality of the longer term impact of interest rates on future mortgage repayments and the share of family income that will be needed to meet such future outgoings.
The government also prospered from aggressive bidding by both mainland Chinese and Hong Kong developers for new sites and raised over HK$128.3 billion (US$16.4 billion), up 32 per cent on 2016, which does not augur well for future residential sales as land costs and increasing construction costs will undoubtedly be reflected in developers’ future pricing strategies.
Looking forward, there are forecasts that we could see as many as 35,000 units being offered for sale in 2018, of which 27,000 will be new stock, and the balance of 8,000 units representing unsold stock from last year. This is encouraging in terms of wider choices, but most of the stock is located in the New Territories in Tseung Kwan O, Tai Po and Tuen Mun and the pricing will largely be driven by proximity to public transport, particularly the MTR. Any upwards movement in price may be balanced to some degree by the prospect of greater supply but nevertheless, the consensus is that values and prices will continue their upwards trend in 2018, possibly by as much as 10 per cent.
As in 2017, the secondary market will continue to be the laggard as sellers are not in a position to incentivise purchasers in the way that the developers can in the case of primary sales and many first-time buyers are having to finance a deposit of as much as 40 per cent, as compared with as low as 10 per cent in the case of primary market purchases.
But what about the bigger picture? We have a task force on land supply but isn’t the answer already obvious? We need a combination of approaches – rezoning, reclamation outside Victoria Harbour, utilisation of brownfield sites and abandoned agricultural land, revitalisation of poor quality, older neighbourhoods – so why don’t we get on and plan accordingly rather than being diverted by long-term possibilities such as filling in reservoirs and either building over or moving the container port at Kwai Chung. Engaging and consulting the community is obviously important and essential, but I believe that housing is such a fundamental need and challenge in Hong Kong that we have to regard securing the sites as a “public purpose” issue requiring streamlined and focused attention.
On the public housing front, we are, I am sure, going to hear more about starter homes and affordable and social housing. The Chief Executive has already indicated an intention to give greater priority than hitherto to home ownership and to increase this to 55 per cent during her term in office. What then prevents her from ring fencing the total public rental housing (PRH) stock at, say 800,000 units, and once this is achieved, all new subsequent production being for sale under a raft of new subsidised and affordable housing schemes?
The PRH is a huge responsibility, and indeed, liability on the community, and there is little if any mobility within the existing stock, and this needs to be addressed either through incentivising purchase or making those who stay and can afford, pay closer to markets rents.
The Chief Executive appears to have made some headway in persuading the development community to release the large tracts of farmland that they currently hold for residential development, part of which will be devoted to affordable housing. However, her carrot is accelerated infrastructure provision and I personally wonder whether that is enough or indeed feasible, as it will require Legco approval to funding and redirection of government resources.
My sense is that we have some way to go before reaching a workable solution.
And then finally we have the Greater Bay Area initiative, which has the potential to turn everything on its head and to affect the dynamics of the market by providing Hong Kong with a range of housing opportunities that have never previously been contemplated. Granted, there are challenges for the time being around schooling and health care, and the flow of people will have to be made easier. But the enhanced connectivity does mean that the possibility of living in a house with a garden, or at least having space to breathe could become more than a dream in the foreseeable future. It is an initiative which will fundamentally impact the future of Hong Kong and we must be part if it.
Nicholas Brooke is chairman of Professional Property Services