This week, our respected leader, CY Leung, made his parting speech as Hong Kong's CEO and one of his statements setting out what the future may hold in store, was to address Hong Kong's housing problem. Hong Kong has a population of almost 7.5 million people stuffed into an area of 1100 sq km, of which 25% is developed and 40% is designated country park. The result is that the developed areas have a stacking system for storing people in little boxes while a lot of great countryside remains to provide an escape from the crowds and which fights a losing battle filtering out the pollution that we shove into the atmosphere on a daily basis.
In the past, children were content to live with their parents until the old folk keeled over but these days people want their own space, which adds to the growing demand for housing. And as demand grows, so do prices so that the average person needs to save for 150 years before they will have enough for the deposit on a flat. Now, our dear leader said that the space for building more houses is so limited that we need to "think outside the box" in order to come up with a solution. And what was his great, out-of-the-box, brain wave? To build on the edges of the country parks. I can only think that, if that is out-of-the-box thinking then CY must live in a very small box which is certainly not the case when you look at his mansion on the Peak.
In the same week, a new development of flats was put on sale in Tsuen Wan and all 400 flats were snapped up on the first day of sales. Clearly there is a high demand for housing. But let's analyse the demographics of these purchasers. Of course, I do not have the figures but that never stopped anyone from putting their case forward. So, if we were to round up these 400 buyers it would be nice to know how many:
- different purchasers there were
- were buying a home to live in themselves
- were buying a flat as an investment to rent out
- were buying a flat as a speculative investment
- were buying a flat through a company
And I am sure you can think of a few more categories.
Almost certainly, some of the buyers will be adding yet another to their portfolio of rental flats. Now, don't get me wrong, it is a very sensible way to invest your money and is something that people do all over the world. Some wouid say that there is a high demand for rental property, or is that because prices are too high for ordinary people to buy because of the demand from investors? But at least these flats are being used as opposed to the estimated tens of thousands of unoccupied flats waiting for prices to rise enough to make resale worthwhile.
So, my first point is that house prices are pushed up because a significant number of buyers are not buying homes but investments. Now, Hong Kong is a free market economy and no government is going to enact legislation that will restrict people's ability to invest their money any way they want but it is hard to ignore that if people were only able to buy one flat and they had to live in it then the property market, and the demand for new housing, would cool down rapidly. And it also brings into question the extent of the housing shortage.
As many people point out, there are plenty of brownfield sites that could be cleaned up and reused but often seem to be ignored. The Wang Chau development was an interesting case in point where phase 1 ate up land occupied by villagers and phases 2 and 3 were to be built on a brownfield site, a large part of which is controlled by a rural leader for the operation of a car park and open storage business. Phase 1 got the go ahead but phases 2 and 3 were deferred.
With most of Hong Kong's manufacturing industries having headed north over the border to China, Hong Kong now has a large supply of empty warehouses and factories. These could be renovated or rebuilt to provide housing.
And then we have the small house policy which allows an indigenous male villager who is 18 years old and is descended through the male line from a resident in 1898 of a recognized village in the New Territories, an entitlement to one concessionary grant during his lifetime to build one small house. In some areas, these small houses, each with three floors, fill every available space. Many of these indigenous villagers do not even live in Hong Kong and are just as likely to reside permanently in Manchester, but why miss out on an investment opportunity. So land is eaten up by this ludicrous rule which no one has the courage to overturn. Hong Kong is not short of tall buildings and tall buildings have the advantage of stacking more people into the available space. If this free for all of three story houses was stopped and replaced with some planned development of, say, 10 stories, the same number of people could be housed in a much smaller space.
Many Chinese have a strange attitude towards nature. Bears are kept in terrible conditions in order to farm bile for medicines, although there are no proven benefits. The same goes for tiger penis and then elephants are killed to provide ivory. Both tigers and elephants are struggling for survival. In the same way, land is a commodity. For many the country parks are wasted space and should be fair game for developers like any other land in Hong Kong but once we start building in the country parks they will be lost forever.
So CY's out-of-the-box thinking seems to benefit property developers and investors but probably not many others. Let's put him back in the box and hope that our next CEO shows more imagination...but just look at what we have to choose from, not that we get to choose.