Chapter 1
Home ownership out of reach for many
Hong Kong is one of the most expensive cities in the world.
Hong Kong is one of the most expensive cities in the world. In Hong Kong the median home price is 23.3 times the median annual wage, according to a 2021 survey, which compared housing affordability in over 92 metropolitan housing markets in eight economies1. This represents the highest housing to income multiple of all markets studied. More worryingly, Hong Kong has topped this list for 12 consecutive years.
Long-term and sustainable housing options for low and very low-income households are limited by the shortage of land supply in Hong Kong. Renting or buying from the private housing market is generally out of reach for these households. In contrast, other property markets have a greater amount of housing support for middle income earners, whether that be to rent or purchase subsidised housing. Figure 1 compares the current housing ladders both in Hong Kong and Singapore. Light Public Housing, a new public housing solution announced in the 2022 Policy Address, has been included for Hong Kong as a step before Public Rental Housing.
Figure 1: Housing ladder in Hong Kong and other markets2
Hong Kong continues to have challenges in providing options within the middle of the property ladder. With limited choice, middle-income families – depending on their level of income – can only resort to one of the following:
- Purchasing smaller sized flats (Category A and B flats with areas of below 40 square meters and 70 square meters respectively) which inadvertently raises the prices of these flats further
- Applying for the government’s Subsidised Sale Flat (SSF), which is only available to eligible households that are within the income thresholds
Chapter 2
Government’s effort in housing affordability
Strategies to accelerate land supply and housing.
Besides policies to attempt to constrain housing demand, the government has considered several methods to accelerate the land supply and housing in the short to medium term. These policies have had mixed results and could be complimented with additional approaches to housing affordability.
The Chief Executive’s 2022 Policy Address
The Chief Executive John Lee Ka-Chiu’s first policy address (2022 Policy Address) set out a broad land supply and housing agenda to address the city’s urgent public and private housing needs.
The new Light Public Housing (LPH) is envisaged as transitional homes for families waiting for traditional Public Rental Housing (PRH).
Over the next five years the government has committed to delivering
30,000LPH units
Over the next five years the government has committed to increase public housing by
158,000units
This represents a 50% increase from the five-year forecast in the 2021 Policy Address.
This is an encouraging commitment but will require a large increase in output from both public and private sector stakeholders to deliver.
Private developer participation in subsidised housing development
The Land Sharing Pilot Scheme (LSPS) was set up to enhance infrastructure and increase the development intensity through public-private partnership and leverage the resources and efficiency of the private market to release the development potential of private land3.
The scheme offers private developers the opportunity to consolidate their fragmented private lots in the New Territories with some government plots and have these rezoned to allow development. As this is new to the Hong Kong market, the government has only received five applications since launching the scheme in May 2020. The Development Bureau has “Supported & Endorsed in principle” three applications with the remaining two under vetting4.
Governance (task forces)
The government is also making efforts to streamline statutory procedures by establishing the Steering Committee on Land and Housing Supply (SCLHS) and Task Force on Public Housing Projects (TFPHP) on 6 July 2022. This illustrates a renewed commitment to delivering much need increases in developable land and an increased focus on delivery of public housing in the short term.
The use of committees and task forces to improve land supply has faced challenges in the past despite having government support and a broad mandate. Both the SCLHS and TFPHP have been provided specific indicators within the 2022 Policy Address. To enhance the transparency, the SCLHS and the TFPHP are required to formulate and regularly publish a 10-year forecast of supply of developable land and supply of public housing respectively.
Modular Integrated Construction (MiC)
The adoption of Modular Integrated Construction (MiC) in the delivery of public housing in Hong Kong would provide a ready-made solution for the growing waiting time for public housing. Whilst the benefits of MiC are clear, the uptake in Hong Kong is still relatively slow for two main reasons. Firstly, several of the Buildings Department codes of practices for construction and structures can be a barrier to more innovative construction techniques. Secondly, investment decisions in the construction and real-estate industry are often focused on the short-term capital expenditure for an individual project, rather than looking at the long-term cost savings over a program of multiple assets5.
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Chapter 3
Opportunities in Northern Metropolis
How can the Northern Metropolis ease housing affordability?
The Northern Metropolis Development Strategy was issued on 6 October 2021 and represents a major change in development priorities in Hong Kong, shifting the focus to the northern boundary to maximize use of available land and synergies with the Greater Bay Area (GBA). This has been reinforced in the 2022 Policy Address, with the Northern Metropolis designated as the new engine for Hong Kong to scale new heights. The strategy will benefit from the available land and infrastructure in the region and should deliver significant benefits within the decade.
The degree to which the Northern Metropolis can ease the housing affordability issue depends on how it can provide for residents at each rung of the housing ladder. It is important to balance the level of private housing, public rental housing and transitional housing to match the demand in the market and the employment demand from industry. The ability of the new department to incentivize all stakeholders in the housing market, both public and private, will be critical to delivering on the promised scale of development in the near-term.
Streamlining development processes in the Northern Metropolis will be another important priority to ensure that housing is brought to market as soon as possible. This includes fast tracking installation of enabling infrastructure such as drainage, water and power by removing unnecessary bureaucratic processes. Consideration should also be given to consolidating development parcels so economies of scale can be achieved in construction time and costs.
The imbalances in the housing market that have built up over the previous decade will require innovation solutions that could be implemented in the Northern Metropolis. The following section identifies housing affordability policies from overseas that could be adapted to Hong Kong.
Chapter 4
New housing delivery
Housing initiatives which have been successfully implemented in overseas markets.
While further investigation is required to assess how and whether these initiatives could work in Hong Kong’s housing market and policy landscape, there are housing products and initiatives which have been successfully implemented in overseas markets in combating housing affordability issues.
Inclusionary zoning
Inclusionary zoning is a land use planning intervention which either mandates or creates incentives so that a proportion of a residential development will include affordable housing for low and middle-income households. Incentives under this approach are typically aimed at reducing the costs for private developers. These could take the form of (a) modifications to planning standards based on performance criteria, (b) bonus systems which relax specified development controls, and (c) planning process incentives such as fast track approvals and accelerated infrastructure provision.
Such intervention is used in several overseas markets including the UK, US and Australia, as detailed below:
- The King’s Cross redevelopment in the UK has redeveloped a previously run-down, underinvested area into a thriving community with two schools, the major rail hub connecting the UK with mainland Europe, a university, public space, restored historical buildings as well as 2,000 new flats, around 50% of which have been dedicated to affordable housing (as agreed between the private developer and London authorities).
- A Mandatory Inclusionary program was launched by the Department of City Planning in New York. Under each mandatory inclusionary housing area, between 25% and 30% of the residential floor area could be stipulated as the minimum allocation for affordable housing units for residents within a specified income threshold.
Rent-to-own
Rent-to-own (or rent-to-buy) schemes are effectively leasing arrangements in which potential homeowners commit to a multi-year lease with a future option to purchase the property.
The scheme is implemented in a number of overseas markets, but primarily in the UK. For example, a rent-to-buy program was launched by the UK government in 2015 to encourage working households to save money while they are renting to give them an opportunity to save for a sufficient deposit to buy their first home. The UK government provided £400 million in loans to housing associations and social landlords to build 10,000 new homes for potential lower income rent-to-owners. When the home is sold or moved to a market rent at the end of the lease term (at a minimum of five years), the landlord repays the UK government grant.
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Read moreBuild-to-rent
Build-to-rent (or build-to-let) is the process in which developers and their financiers build multi-unit buildings and, instead of selling the units, retain ownership of them to rent to tenant households. Rents may be set at market rent or, for affordable and social housing, at an appropriate discount to market rents.
This is an established asset class in the UK and US housing markets and is seen to be different to the existing private rental sector. A driving force behind the expansion of this asset class is the fact that it attracts institutional investment which seeks a stable, long-term income stream.
The US version of build-to-rent, the “multi-family model”, is centered on short-term leases, mainly six to 12 months, with a blend of on-site property and facility management and centralized off-site asset management employed by US multi-family fund managers.
While such developments will increase the overall rental supply, they may not necessarily be the targeted rental properties for low and middle-income households. To achieve this, governments would need to consider providing a range of economic supports to developers.
Government-assisted rental housing
Government-assisted rental housing for middle-income households exists in many overseas housing markets as an interim step between social housing, such as public rental housing (PRH) in Hong Kong, and private rental markets. The specific implementation of such scheme or housing product relies on a combination of different government policies which may vary from jurisdiction to jurisdiction. For example, this form of housing product is called Affordable Housing in New South Wales (NSW), Australia where:
- Affordable housing is housing appropriate for the needs of a range of very low to moderate-income households and is priced so that these households are also able to meet other basic living costs. In that context, housing is considered affordable if it costs less than 30% of gross household income.
- Affordable housing is developed with financial assistance from the NSW government and is owned or managed by registered not-for-profit community housing providers (there are over 140 community housing providers across the state).
- The general target group for affordable housing is households with the potential to transition into home ownership in the medium term.
EY teams point of view
Hong Kong has one of the most expensive housing markets in the world. Efforts to constrain demand and excessive leverage in the sector have not had the desired effect in preventing further spikes in house prices or alleviating affordability issues. The government has committed to alleviating the housing affordability issues through increasing land supply (led by SCLHS) and increasing the delivery of new housing projects (through policies such as the LSPS and innovative building techniques like MiC).
The Northern Metropolis provides a valuable opportunity to address the housing shortage from a number of angles:
Summary
EY teams view the Northern Metropolis as a generational opportunity to tackle the housing affordability issue in Hong Kong, which requires a consideration of the housing mix in additional to the magnitude of housing supply. This paper introduces potential initiatives that could be trialled. We hope it starts a broader debate regarding the possible housing solutions in Hong Kong.
