Michael Stuart-Fox has investigated the residential preferences of workers in the creative and high-tech sector of Hong Kong and Amsterdam for his master’s thesis. In this article he discusses the forces which shape the Hong Kong housing market and whether Hong Kong residents can actually make a meaningful choice when it comes to finding housing.
Choosing a residence and residential location implies that one has some sort of meaningful choice from a set of distinct alternatives. In popular metropolitan areas around the world where the housing market is tight and expensive, the notion of meaningful choice might not accurately describe the relatively limited capacity that households have in choosing housing. In this article, I reflect upon the concept of residential choice in the context of Hong Kong. On the basis of media reports, housing statistics, and the results of a survey in Hong Kong among people working in the creative sector and high-tech sector, I discuss to what extent households in Hong Kong have a meaningful choice to make in the first place. I will examine the importance of the peculiar housing market context in Hong Kong and its many constraints of residential choice. Finally, I make a brief comparison with the Amsterdam Metropolitan Area.
Geography and history
Hong Kong is famous and infamous around the world for its built environment and housing market. As the most densely populated dependent territory or country after Macau and Singapore, it has a unique urban landscape, especially considering the fact that only 6.9% of all land in Hong Kong is built-up with residential structures. About two-thirds of all land area is not built-up at all; it consists of woodland, grassland or wetland that is either very difficult to build on or is protected in the form of country parks. The resulting density is well known around the world. The images of endless rows of high-rise buildings never fail to amaze me as an outsider and I suppose that is the case for most of the many expats and visitors arriving from abroad. Apart from the hilly topography making the construction of housing difficult in most parts of the territory, the enormous population growth of recent decades is an important long-term structural factor underlying the current ‘crisis’ in the affordability of housing. The city has experienced repeated waves of immigration from the mainland in the first three decades after the establishment of the People’s Republic in 1949, which was in political, economic and social turmoil for significant parts of that period. The population grew from around 2 million in 1950 to 5 million just three decades later. Although population growth from natural increase has been fairly limited in recent years, reflecting its low total fertility rate (TFR) of barely over 1.0 children per Hong Kong woman (for the period 2005-2010, according to the United Nations, births to mainland women not included), immigration into the city is still substantial. The number of new immigrants from the mainland who settled permanently in Hong Kong under the One-way Permit for family reunification between 1997 and 2013 was 760,000, a lot of people for a city with a population of about 6.5 million at the start of that period.
A typical cluster of high-rise public housing estates in Kowloon, November 2014. Photo by Michael Stuart-Fox.
Public land ownership and property developers
The rapid increase in population has made the city so densely populated that housing was always going to be a prized commodity compared to other major world cities. The affordability crisis has been further exacerbated by design. All land, apart from St. John’s Cathedral adjacent to the central business district, is owned by the government (since the beginning of the British colonial period) and alienated through a leasehold system. Revenues from land leases constitute a considerable portion of total government revenue. This has created a financial incentive for the government to restrict the supply of land it leases to developers so the lease prices will be higher (described by, for example, La Grange and Pretorius and in book-length form by Alice Poon). For the 2015-2016 fiscal year budget of the Hong Kong government, revenue from land leases (so-called land premium) will total 70 billion Hong Kong dollars (HKD) out of a total of 477.6 billion Hong Kong dollars of revenues, which is almost 15%. High land lease fees are shifted on to ordinary housing ‘consumers’ by the property developers. With regard to property developers, in practice the few big developers form an oligopoly. This was recently aptly illustrated by the fact that three of the largest property developers in the territory – Cheung Kong, Sun Hung Kai and New World Development, each managed by fabulously wealthy and influential tycoons – collectively account for around 83% of the gross floor area of residential property built on sites provided by the Mass Transit Railway (MTR) Corporation, according to a study by the housing think tank Land Watch. Of the 22 MTR sites adjacent to or on top of railway stations released for tender between 2001 and 2014, which in total provided land for 43,334 flats for sale in the private sector, those three developers accounted for a large majority. Large developers have enough capital to bid for large sites offered by way of tender, whereas mid-sized developers simply cannot compete and thus find it difficult to grow. The market for residential property development is thus dominated by a small number of big developers, which reduces competition and leads to higher prices for housing ‘consumers’.
“Severely unaffordable”: bad news for the city
The combination of limited suitable land supply and high population growth has led to a built environment that is dominated by high-rise residential buildings and small apartments for the overwhelming majority of the population. It also leads to relatively high prices for private owner-occupied housing and high rents for private rental housing. According to the yearly research by the American consultancy firm Demographia the ratio of the median house price to the median annual household income (‘median multiple’ as it is termed) in Hong Kong is the highest of all 86 major metropolitan housing markets (more than 1,000,000 population) worldwide that were surveyed. In the third quarter of 2014 the median house price in Hong Kong was 4,892,000 HKD whereas the median yearly household income was 287,000 HKD, resulting in a ratio of 17.0. This was considerably higher than second-placed Vancouver (ratio of 10.6) and third-placed Sydney (at 9.8). It also exceeds the ratio of 5.1 above which housing is rated by Demographia as “severely unaffordable”. The median price-to-median income ratio of 17.0 was even the highest ever recorded anywhere by Demographia. Moreover, the 2014 edition was the fifth straight year in which Hong Kong had the top spot and the ratio of 17.0 was significantly higher than 2013’s 14.9. In the third quarter of 2014, a whopping 48% of residential transactions were more than 5 million HKD, compared to 30% for the same period in 2013.
Expensive housing in Stanley at the southern tip of Hong Kong Island, November 2014. Photo by Michael Stuart-Fox.
Pessimism reigns
The affordability crisis has not always been as bad as it is now. The Asian financial crisis of 1997 hit Hong Kong’s economy hard. The housing market also suffered a severe blow with housing prices dropping significantly. In 2001 average house prices were about half of those of 1997 (for more, see Ronald and Doling’s chapter in the new book ‘Housing East Asia’). Since the second half of 2003, when the market hit rock bottom, house prices have been on the increase again, with average prices in January 2015 almost 240% higher than in July 2003, as recorded by the Ratings and Valuation Department. The inflation on the property market has not been limited to the owner-occupied sector. Monthly rents in the private rental sector have increased by around 95% in that same period. These increases have far outpaced income growth in the same period, as is shown by Yip’s informative chapter in ‘Housing East Asia’. Rising housing prices and rents have thus led to a situation in which more and more houses either for sale or rent are beyond the affordability of the general public.
Houses that are clearly not affordable cannot realistically be considered by households if and when they want to move to another house. The affordability crisis is thus in many ways a crisis of severely constrained choices, with increasing segments of the residential property market out of reach of the general public. This is especially the case for starters on the housing market. A recent survey conducted by City University of Hong Kong professors Ray Forrest and Yip Ngai-ming showed that almost 80% of people aged 18 to 35 are living with their parents or other relatives, 12% with their partners and 5% in households including a partner and parents or other relatives. Just a handful of respondents lived on their own, and sharing a flat with friends is also very uncommon. More than two-thirds of those living at home said they couldn’t afford to live anywhere else. Hong Kong’s young adult population are also not optimistic about their housing future. More than 40% think they will never be able to buy a flat. A majority thinks that housing prices will rise faster than their incomes.
Government response
This prospect of a more rapid increase of prices than of incomes is indeed likely to materialize, even though the government in recent years has introduced some policy measures aimed at reducing the increases in house prices. In November 2010, on top of the already existing stamp duty, the Hong Kong government introduced the Special Stamp Duty (SSD) which is a special tax of 15%, 10% or 5% on the transaction value of residential property that has to be paid by either the seller or buyer (or jointly) if a property is resold within 24 months. Reselling within short periods of time is often done by those who buy houses just for investment purposes, which has been a major factor contributing to Hong Kong’s house price increases. In October 2012 this time period was increased to 36 months, making more buyers and sellers liable to pay the SSD. In that same month the Government also introduced the Buyer’s Stamp Duty (BSD) which is a special 15% tax on the transaction value of residential property that has to be paid by those purchasers who are not Hong Kong permanent residents. Buyers from the mainland, who had been buying large numbers of mostly high-end apartments in the city, were thus faced with higher transaction costs. Although this is the kind of measure that most other global cities that attract many foreign buyers, such as London and New York, have not (yet) introduced, it has not been particularly effective in dampening property price inflation. In any case the government, and of course property owners themselves, have a vested interest in not letting prices go down. In total, stamp duties, which also include those on shares, contribute a significant 50 billion HKD in revenue in the current 2015-2016 fiscal year. Lower property prices would also lead to lower land lease fees so the government has a vested interest in keeping residential property prices, seen from an international perspective, at a high level.
Subsidized homeownership
What sets housing in Hong Kong apart from most others cities is not only the seriousness of the unaffordability problem, but also the existence of something called public home ownership. Between its introduction in 1978 and its indefinite suspension in 2002, Home Ownership Scheme (HOS) housing, which was constructed by the Hong Kong Housing Authority (HKHA), was sold to Hong Kong permanent residents with income and assets below certain limits. On average, flats were sold at a discount of around 30% compared to market prices for comparable units in terms of size. To counter speculation, flats could only be freely resold on the open market after a fixed number of years. Various other public home ownership schemes have also existed and the schemes helped many households buy a flat of their own. About 16.5% of the population in Hong Kong now live in such subsidized homeownership housing. HOS was scrapped in 2002, however, because falling prices on the housing market increased the affordability of residential property and made government assistance with purchasing a house less necessary. But there was also a lot of pressure from property developers in Hong Kong to axe the scheme, as is for example described by Fung and Forrest. As a result of public pressure, the government in 2011 re-introduced a smaller version of HOS, with the first batch of 2,160 new HOS flats, ranging in price from 1.87 million to 3.26 million HKD, expected to be completed in 2016/17. The number of applicants, however, was telling. There were a total of 135,000 applicants for the flats, the largest oversubscription in the history of the HOS. In any case 2,160 HOS flats are not enough to help alleviate the housing crisis in any significant way. There is some hope, however, that the projected 74,000 new private houses that will become available for sale in the coming three years will at least ensure property prices do not rise much further in the near future.
Most of the new housing supply will be high-rises just as pictured here in Aberdeen, southern Hong Kong Island, November 2014. Photo by Michael Stuart-Fox.
Hong Kong compared to the Amsterdam Metropolitan Area
Due to the high house prices and rents many households in Hong Kong simply do not have a meaningful choice on the housing market anymore. It is no wonder that the Secretary for Transport and Housing, Anthony Cheung has called housing “one of the most critical social problems haunting Hong Kong today”. The results of the online survey that I have gathered data during my fieldwork in Hong Kong in 2014 to also emphasize the importance of affordability as a major constraint on the housing market. Highly educated respondents in the creative sector (advertising, design, media) and high-tech sector (science and technology research and ICT) with relatively high incomes formed the sample group. Almost all respondents indicated that they found “affordable housing of the type you prefer” either a ‘very important’ or ‘important’ aspect of the urban region (i.e., Hong Kong) they were living in. Whereas about 15% of highly educated respondents in the creative sector and high-tech sector in the Amsterdam Metropolitan Area (MRA), who were sampled earlier in 2014 as part of the HELP project, found housing affordability ‘not so important’ or ‘unimportant’, in Hong Kong virtually all respondents rated it as ‘important’. Of those respondents who indicated a chance of less than 50% that they would move house within the next two years, about 40% of Hong Kong respondents indicated that lack of affordability was one of the reasons for not moving. In the MRA that share was about 20%. Respondents were also asked to rank the importance of various aspects of the dwelling in case they were to move house. About 40% of respondents in Hong Kong ranked “relatively low housing costs” as the most important aspect of the dwelling, more important than the other characteristics that had to be ranked: private garden, building style and architecture, owning one’s home, no up- or downstairs neighbours, a spacious dwelling, and a free view. A similar share in Hong Kong found relatively low housing costs the most decisive consideration of all 21 aspects of the dwelling, neighbourhood and relative location that respondents were supposed to rank in three separate questions. In the MRA housing affordability was also the most often mentioned decisive consideration, but the corresponding share was about half that of Hong Kong, at 20%. Despite the unaffordability crisis, homeownership in Hong Kong is still the preferred tenure among those surveyed. About 50% prefers to buy on the private market whereas around 17% favors buying through a subsidized homeownership scheme. In the MRA a strikingly similar share of around 67% prefers an owner-occupied dwelling in the case that they would move house. For about a third of Hong Kong respondents “owning my home” was the most decisive consideration of all 21 aspects, the second-most chosen answer after “relatively low housing costs”. In the MRA just over 10% indicated that homeownership was the most decisive consideration of all aspects listed. The study among young adults by Forrest and Yip, mentioned in a previous paragraph, also showed that homeownership in Hong Kong is still widely aspired, even though many young people do not expect they will be able to actually buy a house for themselves.
Choice or constraint?
That was the question at the beginning of this article. In Hong Kong choice is severely constrained by the lack of affordability. While affordability itself is an important issue in many popular cities around the world, I hope to have shown in this article that in Hong Kong this takes on an urgency and seriousness that make the city stand out internationally. In the Pearl of the Orient it is property developers, and ultimately also the government, who shape the housing landscape of the city with citizens finding it ever more difficult to buy or rent the home they would like to live in.
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