HK lives up to reputation for resilience, persistence

Richard Cullen says working legislature makes it possible to address the intimidating housing crisis in creative ways

An observer of Hong Kong politics recently suggested that lack of progress in dealing with our housing woes showed that Hong Kong’s chief executive, Carrie Lam Cheng Yuetngor, had wasted the last four years. This raised an eyebrow, given that these years have been dominated by relentlessly grim dysfunction within the Legislative Council, a terrifyingly violent and destructive insurrection, and the COVID-19 crisis.

In fact, that exceptional LegCo dysfunction dates back many years. For over a decade, the opposition in LegCo made a habit of examining every new government policy suggestion to see how many political hand grenades they could heave at each fresh proposal. From time to time, there would be some debate on the merits. This was the exception, however. Intimidation, playing to the gallery, and raucous politics became the norm in LegCo.

Imagine Batman and Robin had been asked to fix the housing crisis around 2017. Even without foresight of what was to come, I guarantee Batman would have taken one look and said, “Robin, this looks like a job for — somebody else!”

Lam, however, has stayed the distance through all this turbulence and now, steeled by that extraordinary experience, she has delivered the final Policy Address of her current term of office. There are many matters covered in that address, including health and education, economic development, integration into the GuangdongHong Kong-Macao Greater Bay Area, civil service reform, the rule of law, and national security.

But it is the new and reaffirmed policies on addressing the housing crisis in the special administrative region which have, understandably, generated the most headlines. Briefly, we now have a fundamentally recast proposal to build a very large new Northern Metropolis in the New Territories, strategically located on Hong Kong’s border with Shenzhen, coupled with the continued commitment to the extensive Lantau Tomorrow project and certain other landbuilding initiatives.

It is useful to consider the basic historical context within which the supply-anddemand housing equation in Hong Kong sits, as this helps explain how these new initiatives have come to be shaped as they are.

Many see Hong Kong’s housing predicament primarily in terms of sky-high purchase prices and maximum developer profits. This perspective is not essentially wrong, but it provides an incomplete explanation leading to an abbreviated misreading of the whole picture.

Frankly, Hong Kong has long lived with these extraordinary price and profit realities. They are very significantly a product of the land-related revenue system that has done such a remarkable job of boosting public revenues in Hong Kong since 1842 while supporting a low-rate, simple taxation system. Curbing the supply of land for private housing has not only boosted developer profits — it has also singularly filled up government coffers. Moreover, the government has retained a primary-owner interest in all land in Hong Kong ever since 1842, as virtually no land has been sold as freehold — but only as leasehold.

This core element in Hong Kong’s unique revenue system did, however, create a major problem in that it was pricing even basic housing far beyond the reach of the lower paid and, indeed, was making it unaffordable for a clear majority of residents. This was a result of the system’s inherent tendency to push land prices higher combined with policies producing a shortage of available land for high-density usage and the unrelenting growth in demand.

One long-term consequence of the British policy of greatly restricting the land available for high-density development is the amount of green space in Hong Kong. A comparison confirms just how remarkably extensive our green space is. Singapore has a population of around 5.7 million living within an area of 719 square kilometers, compared to 7.5 million living within 1,100 square kilometers in Hong Kong. A report, in 2017, noted that, in Singapore, around 14 percent of land is used for housing with around 10 percent set aside as parks and nature reserves, while the comparable figures in Hong Kong are 7 percent of land devoted to housing and around 40 percent set aside as country parks and reserves.

In fact, British Hong Kong faced a far worse housing crisis in the 1950s, made drastically clear on Christmas Day 1953 when a devastating fire swept through the Shek Kip Mei squatter area, leaving over 50,000 Chinese-mainland immigrants homeless. The Hong Kong government soon launched what became a huge public housing project. Since then, successive Hong Kong governments have worked to create one of the most extensive and successful systems for providing public rental housing seen anywhere in the world. The government has used land over which it had so prudently retained ultimate ownership and ample saved funds, not least from the land-related revenue streams, to bring about this housing revolution. It is, in many respects, an extraordinary public policy achievement.

The result, today, is that the government still directly provides PRH for around 2.5 million Hong Kong residents — and it continues to build PRH on a very large scale. Meanwhile, the program which permits flat purchases by qualifying lower-income buyers at discounted prices has been an effective way of allowing access to homeownership to purchasers who would otherwise be shut out of the market. These flats house around 1.5 million residents.

The solution has, though, always left far too many behind. This was so during the British Hong Kong era. And it remains the case today. Intense levels of demand continue to exceed supply. There are the pressing needs of the poorest Hong Kong residents living in over 100,000 tiny subdivided flats and paying, per square foot, extremely high rents. Then, there are the 50,000 familyreunion mainland migrants per year (a legacy from a Sino-British agreement) and the conspicuous number of younger residents who face inordinate difficulty in securing a home of their own. The waiting time for eligible persons to secure PRH is now around six years.

Since mid-2020, national security legislation and major electoral reforms have been applied by Beijing in the HKSAR. These radical remedies provided a calibrated response to the extended, offshore-supported insurrection that was followed by a further election-based political destabilization exercise, both of which unfolded during the hostile escalation of the ongoing US-led Sino-containment project.

Despite the depletion of Hong Kong’s very large fiscal reserves due to exceptional deficit spending to cushion the severe economic impact of the COVID-19 pandemic, ample reserves remain to help drive the accelerated building of substantially more social housing (for rent and for sale). Ernst & Young estimated in January that COVID-19 spending has reduced the reserves by about 30 percent; but remaining reserves still totaled around HK$870 billion ($111.8 billion) on July 31, according to government figures. Moreover, now that growth in Hong Kong’s economy has recommenced, we can expect to see these reserves being steadily replenished. Finally, these distinctively ambitious new building projects will generate substantial revenues from sales and rents once each phase is completed.

Massive spending on public housing, enabled by Hong Kong’s super solvency, has provided a crucial foundation for the dominant long-term social stability, which has largely prevailed since the end of World War II. That stability has been regularly tested by intense, sometimes deadly, political protesting. After each such ordeal, Hong Kong has, typically, collectively righted itself, living up to its reputation for resilience and persistence. Today it is doing so, yet again, as it rebuilds after the immensely damaging upheaval which began in mid2019.

Now that the HKSAR has regained a working legislature, replacing the kneejerk opposition LegCo, a primary barrier to addressing crucial livelihood issues has been removed. Fixing the “LegCo logjam” is not a complete solution in itself — there is so much hard work to be done, and the reformed LegCo will take time to find its feet. However, as the Policy Address demonstrates, it is now possible to consider how to address the intimidating housing crisis in creative ways that were previously inconceivable.

Stability has been regularly tested by intense, sometimes deadly, political protesting. After each such ordeal, Hong Kong has, typically, collectively righted itself, living up to its reputation for resilience and persistence. Today it is doing so, yet again, as it rebuilds after the immensely damaging upheaval which began in mid-2019.