All Hong Kong administrations since the 1997 handover have had one (unwritten) core policy: push up housing prices and rents. The first administration of Tung Chee-hwa initially talked of lowering prices, but swiftly backtracked when the property bubble burst. That 1990s bubble was partly due to the Chinese government’s earlier insistence that the colonial regime restrict land supply. Beijing supposedly suspected that the British would run away with the land-sales proceeds, but the post-1997 experience suggests a deliberate strategy to boost the revenues of landed interests – notably developers – who had been co-opted by the Communists starting back in the 1980s.
With the worldwide uplift in metropolitan housing costs and ultra-low interest rates, even developer-worshiping officials must wonder if Hong Kong home prices have overshot and pose economic and political threats. High prices deplete consumers’ spending power, drive out economic diversity and fuel anger among the young. But Hong Kong policymakers still cannot or will not take real action.
After Chief Executive Donald Tsang’s unashamedly pro-developer policies (2005-2012), CY Leung announced an intention to restore long-term land supply. But he only dabbled in tackling the imminent affordability problem – for example, pointlessly earmarking one plot of land for apartments to be sold to Hong Kong people only.
His successor Carrie Lam is following a similar approach. She has set up a talking shop to find long-term land supply within the existing framework that leaves most obvious sources of space off-limits. And she is unveiling a ‘starter home’ concept to add a third layer of publicly subsidized rental and for-sale housing. This will probably be a small, token initiative – but if taken at face value, it implies acceptance of a situation where only the top 10% or 20% of households can afford ‘market’ prices.
Like CY, Carrie is refusing to consider lower ‘market’ prices as an option. We will hear nothing about restricting demand by curbing immigration or overseas investor-buyers. We will hear nothing about opening up land hoarded by developers, attaching conditions to land sales, or otherwise reducing developers’ influence over the market. We will not even hear much about re-zoning land or updating building and planning codes to allow bigger, more efficiently designed homes.
No-one will mention that the real issue (once you net out external factors like interest rates) is artificial unaffordability arising from official policy to maximize revenues from land-use. (The government in effect taxes housing while restricting supply, so pushes home prices up, so the tax on housing goes up even more – in a cycle that serves no fiscal or economic purpose but pads out developers’ margins.)
Like CY, Carrie is probably avoiding real action not only because she and her buddies can’t handle the horrifying idea of lower prices, but because she knows that ultimately this is built on a bubble which will burst at some point. When the tech stocks and Bitcoin and bond markets collapse, Hong Kong’s ‘housing crisis’ will be about over-mortgaged idiots in negative equity committing suicide. The longer it takes, the more risky and unthinkable addressing distorted affordability becomes.