According to the 2019 Global Housing Affordability Survey published by Demographia, an international public policy consultancy, Hong Kong is the most expensive city to live in. In 2018, the housing price to income ration in Hong Kong is 20.9, resulting in that the living space per capita in Hong Kong is approximately 12㎡.
The History of Hong Kong Housing System
In the 1840s, the British started the Opium War with China and occupied Hong Kong until 1997; during this period the land was owned by the British Royal Family. The surging population was the main factor for housing scarcity and poor living conditions.
To improve the housing system, from 1954 to 1986, the government built a large amount of public housing and the living environment in HK was enhanced.
From 1987 to 2000, the economy boomed. The GDP per capita increased with an average annual growth rate of 7.73%. Along with the rapid economic development, the demand for private housing was much higher.
In 2003, the government started cutting down the supply of land and public housing. The housing subsidy was reduced due to the excessive financial pressure of the government. From 1986 to 2017, the average price of private housing in HK Island, Kowloon and the New Territories increased 20 times, with an average annual growth of 10%. The homeownership rate fell from 54% in 2004 to 49% in 2017 on account of the high price.
What Drives High Housing Price?
The cycle of the real estate sector highly depends on the finance in the short term, the land policy in the medium term and the population in the long term. After Hong Kong was returned to China, the land became public, but the right to use the land could be transferred freely after leasing. Adding to this the environmental policy created a shortage in land supply. However, the demand for private housing was expanding with the growing populations. Together with the easing financial policy from 2008, the living in HK started to become more and more expensive.
In 2016, about 50% of residents lived in their private houses and nearly 31% of residents lived in public houses. However, it takes a long time (average of 5.3 years) to queue for public housing. As a result, the demand for a private house is increasing as the development of the economy. On the other hand, the rent for private housing increased correspondingly.
One special feature of Hong Kong is that the real estate sector accounts for an extremely high proportion in the HK economy. Real estate is the most important source of government income in HK. It contributed to more than 32% of financial income in 2016. Real estate and its related industries make up 20%-25% of the HK GDP since 2006. The special economic structure widens the gap between the rich and the poor, resulting in the difficulty for lower-income residents to purchase private houses.
The Future of HK Housing Market
To solve the housing market effectively, HK has promulgated series of new policies in 2017. The policies involve increasing land supply, public housing supply and subsidizing low- and middle- income groups to purchase houses. After the implementation of these new policies, the housing price experienced a slight downtrend since August 2018 but recovered from the beginning of 2019. The fall of HK property price is appeared cyclical, not structural, therefore, there may not be an abrupt turning point of the housing price.
Hong Kong has been regarded as the financial centre of Asia for years. With the financial development of some mainland cities such as Beijing and Shanghai, it is expected that the financial status of HK in Asia may be weakened to some extent, which may also have an impact on the housing price in the future.
Generally speaking, it is probable that the housing price in HK will experience a slight decrease in the future, however, the fundamental dilemma of the housing condition is unlikely to be solved in the short term.