GDP gain won’t ease homebuyers’ pain
As families spend 70 percent of their income on tiny 450-sq-ft apartments, a fundamental overhaul of HK’s economy is long overdue, Zhou Bajun notes
Hong Kong’s gross domestic product achieved 4.7 percent actual growth year on year in the first quarter — this exceeded most people’s expectations and was the highest level in seven years. However, Hong Kong residents’ home purchase affordability (HPA) index was a picture of despair, at around 71 percent in the same period. In layman’s terms, this means the monthly installment a homebuyer has to pay for an apartment of 42 square meters (roughly 450 square feet), with a 20-year mortgage on 70 percent of market price, eats up more than 70 percent of the median monthly income of private homeowners in Hong Kong.
The above formula for calculating the HPA index assumes Hong Kong families making enough money to consider buying private housing can only afford up to a 450-square-foot apartment on average. This much average living space is already surpassed by most if not all major cities on the Chinese mainland nowadays. If housing prices continue to rise in Hong Kong, the local HPA index will no doubt go higher, unless local residents’ income increases proportionately as well. For the same reason, if local housing prices keep rising in the long run, the average area of local households’ living space would shrink unless their average income grows at a similar rate.
On the other hand, life is even more difficult for those who are not making enough money to consider buying an apartment on the private housing market. On the same day the special administrative region government reported that Hong Kong’s GDP growth for the first quarter hit a seven-year high of 4.7 percent, the Hong Kong Housing Authority announced that, as of March, the average length of time public housing applicants had to wait before moving in was 5.1 years. It was 4.7 years last December.
Hong Kong’s economic growth rate reaching a new high is definitely something to celebrate but it cannot hide the deeper problem — that its economic restructuring is long overdue.
Many people agree increasing land supply for housing development alone cannot stop property prices from rising. In Hong Kong, it is a lot easier for housing prices to go up rather than come down, which is why they hit new highs all the time. Why? Because not only does the government control land prices and rely heavily on land sales as a main source of revenue, but also the private housing market is dominated by a few big developers. They sit on large swaths of land for years if not decades to drive market prices ever higher for maximum profit. Land prices will keep rising unless the government makes a conscientious effort to stop them. Likewise housing prices will rise until the domination of the private property market by a few big developers ends. To end the city’s dependence on land sales for revenue, the government must establish more sources of income. Hong Kong’s economy needs more growth engines to reduce its dependence on the real-estate market, which is dominated by a few big developers. The city has not been able to solve the problem precisely because its economic restructuring has made little progress in recent years.
Increasing land supply alone is not enough to rein in runaway home prices or rekindle many people’s hopes of becoming homeowners for that matter. Higher prices of private housing will push the HPA index up and, as a result, more families will lose their ability to afford anything the private housing market has to offer. Even worse, many of them do not qualify to purchase subsidized housing or become publichousing tenants, either. Subsidized housing prices and public housing rents are set in proportion to private housing prices and rent for residential units of similar grades. This means continuous privatehousing inflation will push the former up and render many families unable to afford subsidized housing or pay public housing rents even if they qualify. That is why this author has repeatedly urged the SAR government to take decisive action and cut the link between private market prices and subsidized and public housing prices and rents.
To speed up economic restructuring and expand the innovation and technology sector, the SAR government must make some major moves, such as effectively taming housing prices by reforming the real-estate market while increasing land supply for housing development appropriately. Only the government can make it happen but it will take a lot of courage and resolve to pull it off. This is because such moves will shock Hong Kong society and be met with very strong resistance from developers and market speculators. That means the government will have to be tough and determined.
In addition to being tough and determined the government must also take its time to address the finer details when fixing the housing situation. It certainly should not rely on “heavy blows” only, because sometimes soft touches and delicate handling work better.