Why Hong Kong housing affordability has little to do with supply
Ian Brownlee says increasing the housing supply in Hong Kong won't necessarily lead to more people owning a home, as the policies and financing controls in place now effectively keep prices high
Hong Kong's housing has been unaffordable for many local people for around 30 years. It is ironic that when worldwide interest rates are low, it is almost impossible for middle-income people in Hong Kong to buy a flat.
Financial obstacles put in place by the government and the Monetary Authority protect the banking system and keep the property market high. They prevent people with a reasonable income and little accumulated wealth from buying a flat, trapping them in the unaffordable private rental market.
Recent history shows housing only became affordable with the exceptional impact of the Asian financial crisis in 1998 and the severe acute respiratory syndrome outbreak in 2003. Under the existing financial structure, affordable levels are only likely to occur if similar exceptional events occur, or if a major review is made of financing the housing market.
Studies indicate that affordability in Hong Kong's housing market is not determined by supply. They show that, over the past 20 years, there has been no correlation between the number of units provided and the price of housing. Price is consistently high regardless of supply.
The government's focus on increasing housing supply is unlikely to improve affordability, as other factors are more significant in determining prices and who can buy. A commitment to sustainable development requires us to change institutional mechanisms to find solutions, before we permanently damage our physical and social environment by rezoning sites for housing that are reserved for community facilities, open space and green belts.
The property market has other unusual characteristics. A high proportion (almost half) of all private housing is owned without a mortgage. This means there is sufficient wealth in the community to enable property to be purchased without bank financing. There is also almost no mortgage loan delinquency in Hong Kong, meaning borrowers meet their commitments. There is little risk for banks or the banking system.
Demand-side controls have no effect on reducing market prices, as property still remains affordable for those with sufficient accumulated wealth. This can be seen in the present market.
