The Reasons Hong Kong’s Housing Market Being Extremely Expensive
The city of Toronto feels immensely crowded all of the time. With traffic, construction, and 2. 8 million people crammed into a 630km2 space, it’s impossible not to feel like a sardine packed in a tin can. Even with all this said, it could be a lot worse. Hong Kong has around 7 million people living on around 1,108 km2. That is a lot of people, on not a lot of land. This, of course, would cause problems. In places like Vancouver, the price of housing is incredibly expensive. Things like a windowless shed was rented for $1,225 a month or micro-suites being rented out for $1,700 a month. This is practically a dystopian nightmare; it seems impossible to beat this kind of living expense. Unfortunately, Vancouver is not actually the most expensive city. That title belongs to Hong Kong.
In 406 housing markets all over the world, in 2017, Hong Kong rates as the most expensive place to live, by a pretty large margin. The median household income in Hong Kong is around $300,000, but the median price for a house, is around $5,000,000. This annihilates any other housing market on the list. The second place, Sydney, Australia, median household income is $88,000 with the median price of a house around $1,000,000. With the conclusion to all this information, it begs the question, what makes Hong Kong so expensive? Why does it beat all the other cities with such ease?
There are three aspects that are cited by most journalists for the reasons that Hong Kong’s housing market is so ludicrously expensive. Supply and demand, developers driving up costs, and the government’s need for revenue. The effects of these three aspects are both prominent and immediate on the lives of Hong Kong residents. Fortunately, the government is trying to combat these effects with relative success. Hong Kong is an incredibly dense city. As stated before, it holds around 7 million people in around 1,108km2, if Toronto ever feels like it’s too crowded, stand in Hong Kong for a while. The 7 million people truly become tangible. As well, there is a high demand to work and live in the city. It is not only an extremely important place for finance, it is also a really close access point to Mainland China. It is a great place to do business as there is practically no tax in Hong Kong. This makes the city very popular, but that also makes it very hard to live in.
Lastly, there’s not much land left to build on. Hong Kong is quite hilly, it is not very flat, so it is difficult to build upon. As well, the New Territories are islands, so it is mostly uninhabited and not advisable to building condominiums on them. The livable land is getting smaller by the day, while the population continues to grow. So more and more bodies are packed into these spaces of livable land. This leads to prices of housing being incredibly expensive. All the land that can be developed upon, is mostly owned by the government, which the government then sells to developers. The developers buying up all this land are mostly mainland Chinese, and they typically take these plots of land and build apartments or condos for exorbitant prices. In fact, two Chinese developers paid $2. 17 billion for a plot of land in Ap Lei Chau that was only about 11,761 square meters big. That is about HK$22,118 per square foot. This seems like a ludicrous amount of money, but property agents predict that the newly built apartments would cost about HK$32,000. It was sold by tender to Unicorn Bay Investments. The buying of the land was a venture between two large companies, Logan Property Holdings of Shenzhen and KWG Property Holdings, based in Guangzhou. To these developers, Hong Kong is a particularly attractive place to invest in.
Unfortunately for those who live in Hong Kong, this means that housing prices will continue to rise. As the city attracts more developers, there will be more competition to bid for these plots of land, this in turn causes the bids to be higher and higher, which then means that the price of the buildings will also go higher and higher. All this together makes a horrible time for those trying to find a place to live in Hong Kong. A big reason why Hong Kong is so sought after for those in the financial world, is the low tax.
The way the Hong Kong government can keep its tax low while also not being flat broke all the time, is that a large percentage of the governments revenue comes from selling the land. It is vital for the government to make sure that the prices for land stay as high as possible for as long as possible. If the land value drops too low, they would have to do something about their low taxes. That is not something the government would not want to do since low taxes is a staple of Hong Kong. So there is no real desire from the government to do anything about the cost of housing there. As long as the land value stays high, the government gets more money. The only downside to this plan, is that housing prices soar to cover the cost of buying the land. There are many effects of such an expensive housing. One of them being, that some residents are having to live in harsher conditions. Things like cage housing and coffin homes have become genuine places to live for residents who cannot afford to pay such expensive pricing. Places like nano homes can be up to 200 square feet, while coffin homes are like 15 square feet, that is not even a full parking space. One nano home in the Sheung Wan neighborhood, is 200 square feet and costs HK$23,000, which is around US$3,000 a month. Another effect of expensive housing, is the reaction to these tiny homes. Things like nano apartments, an apartment around 194 square feet, specially designed to have two bedrooms, a bathroom, and a kitchen. So even though it is small, it is strategically designed within that small space to try and fit as much livability as possible. One man even created a “luxury” coffin home. A sort of pod that’s mostly just a bed, but fits a lot of modern luxuries within it, like a TV, air conditioning, etc. They are small enough to fit around 18 of these pods in each apartment. He states that the selling point for a lot of people renting out these pods is the fact that they can get their own personal space, they do not have to be crammed within a divided apartment. Also, they can get some modern amenities where if they rent out a coffin home from somewhere else, it might not have them. Fortunately, the government is doing something about this housing problem.
Public housing is a major part of housing in Hong Kong. The government has put measures in place to ensure that the residents have programs that provide sufficient housing for lower income residents. Of these programs, they include public rental housing. This is the most common type of public housing in Hong Kong. It’s when housing is being rented out at a lower rate to lower income residents. This program is typically run by the Hong Kong Housing Authority or the Hong Kong Housing Society. Another type of public housing is the Home Ownership Scheme; this is when estates are subsidized so that lower income residents can afford them. The price of the land and the price of rent is all subsidized, to that they can become affordable. These subsidized buildings are typically built beside or within the vicinity of Public Rental Housing. Home Ownership Scheme is also run by Hong Kong Housing Authority. Interestingly, public housing policies were first started back in 1954 after a fire broke out in Shek Kip Mei. This fire destroyed hundreds upon thousands of homes. This spurred the government into starting a program for public housing. Even with all these public housing programs in place, some residents do slip through the cracks. This is where the nano homes and coffin homes come into play. Fortunately, the trend of these tiny homes seem to be doing downwards. In 2007 only about 50,000 residents lived in cage homes, compared to 1998 where about 100,000 people lived in cage homes. So the government’s response to the housing problem is working, but unfortunately, people still do tend to slip through the cracks and it seems like the government is not responding fast enough to the demands of an ever growing city.
Hong Kong is a beautifully thriving city, with culture and history that is truly rare to see. But with every great city, there is bound to be some friction. One large source of friction in Hong Kong is the housing market. With its high supply and demand, developers driving up costs, and the government’s need for revenue, the housing market is especially expensive. The effects of the housing market on the lives of Hong Kong residents create a substandard living condition and an opportunity for creativity. Thankfully, the government has been trying to combat these pretty dire living conditions, to relative success. Going forward, it will be interesting to see how the housing market in Hong Kong will resolve itself. Will the residents be forced to relocate? Will there be new restrictions on developers? Personally, I don’t know much about real estate or business. I think that the Hong Kong government is trying to at least do something about the issue. Seeing the declining number of these coffin homes gives me a glimmer of hope. I suppose that Hong Kong is such a unique place, that maybe this issue has never come up before. So it’ll be interesting to see how Hong Kong will deal with the issue even though I personally don’t know how it would.
