At SAI KUNG BUZZ we think it is unconscionable of the Government to be moving to encroach on the country parks for housing development when there is so much land lying waste out there. We asked Roger Nissim, Adjunct Professor, Department of Real Estate and Construction, University of Hong Kong, about this. Roger sent us the text of a talk he gave last year. It remains valid today and contains many points of interest for those scratching their heads over the residential property market. Roger said the only thing he would now add is the Professional Commons’ estimate, based on Google mapping, that brownfield sites total about 1192 hectares or 1% of Hong Kong’s total land area.
According to Roger, “The Government is planning to use some 380 hectares of brownfield land in their developments in Hung Shui Kiu, Yuen Long South and Kwu Tung North/Fanling New Development Areas. To avoid a repeat of the Wang Chau fiasco this is to be encouraged and supported as the right way forward”.
Here is Roger’s talk.
I want to start by looking at the relationship between our population figures today, past and present, and how that has been translated into demand and then supply of housing.
All the figures I will be quoting today are from official Government sources, principally the Census and Statistics Department, and Rating and Valuation Department.
By mid-year 2015 our population was slightly over 7.3m.
By end- September 2015 there were 2.726m permanent living quarters of all types in Hong Kong which gives you an average household size of 2.68. If you allow for say a 4% vacancy rate this figure would come up to 2.8.
The current stated household average size is given at 2.9 so on these figures alone you could argue that there already is, broadly speaking, a balance between supply and demand.
A full census is carried out every 10 years – in 2001 we stood at 6.708m which grew to 7.072m in 2011, that is an increase of 364,000 or 36,400 people per annum (pa). The growth from 2011 to 7.3m equates to an increase of 252,000 over a 4 year period or 63,000 pa.
Looking back at the periods of extreme growth in Hong Kong’s population with mass migration from China for the years 1971 – 81 we grew at 100,000 pa and from 1981 – 2001 at 80,000 pa.
Why do these figures matter?
The Long Term Housing Strategy now has a target of providing 460,000 new flats by 2025/26.
By that time the predicted average household size is expected to be 2.8. If you multiply these two figures together it gives you a predicted population growth of 1.288m or an unprecedented 128,000 people pa, which is twice the current growth figures and would result in 8.6m total, which is greater than Census and Statistics estimate for 2041!
Census and Statistics are, in fact, predicting a more realistic population of 7.8m by 2024 which given our ageing population, increased divorce rates, delay in younger people getting married, often not wanting any children, Hong Kong is more likely to mirror Japan’s declining population pattern rather than any massive increases.
Accordingly, I consider that this 7.8m figure is much more realistic and should be used as the yardstick for planning housing production with the consequential much lower requirements for land supply.
Personally I do not think the present housing situation is as dire as some legislators and the media would have us believe.
Today public rental housing (PRH) houses 28.8% of our population with another 14.6% in subsidised sale flats leaving a majority of 56.6% of our population in private permanent quarters with over half of these fully owned without mortgages.
The Chief Executive’s 2016 policy address has committed the Hong Kong Housing Authority (HKHA) and the Hong Kong Housing Society to produce, in the coming 5 years, another 76 700 PRH and 20 400 subsidised flats and this is where Government should be focusing its land supply efforts.
For me this represents a very solid level of both existing and planned provision and my own interpretation of the statistics of housing quarters versus average household size is that we do not, in fact, have a housing shortage.
So what is going on?
What is it all about?
IT IS ALL ABOUT AFFORDABILITY
Paul Chan, Secretary for Development agrees saying last month “we believe the housing demand remains large, and that home prices remain at a level not easily affordable by the general public …….. the market will, hopefully, gradually achieve the right balance between supply and demand.”
Again the statistics do not bear out Chan’s assumptions as to the state of the market.
In the private sector over the six year period of 2009 to 2014 – 64,133 units were completed; an average of 10,689 pa, whilst during the same period 62,650 units, at an average of 10,441 pa, were taken up.
Taken together with an overall vacancy rate of 4% – to me this indicates that in the private sector a broad balance already exists between supply and demand.
Some very detailed and interesting research carried out by my Hong Kong University colleague, Dr. L H Li, published last year, looked at Land Supply and the Housing Market. Li’s team studied the government land sales over a 25 year period from the start of 1987 up until the end of 2012 during which time there was an ample supply of land auctioned for sale in the first part of the study period up until 1997 at an average of around 20 hectares per annum, a hiatus between 1998 and 2004, followed by a very restricted supply of land for the remainder of the study period while the Land Application System was in place when as little as 5 hectares per annum was sold. The analysis clearly showed that throughout the 25 year period of the study the level of land supply from government sales DID NOT have any impact on house prices. Interestingly during the period of the Application System when house prices went up more land was triggered for sale but prices did not come down.
Li’s data went on to show that Hong Kong people only buy property when the price is going up but refrain from being homeowners when prices are going down.
Historically, and now currently, the only time major corrections to house prices occur is in response to EXTERNAL economic factors not internal ones. You only need to look back at the impact on Hong Kong of the Thai bhat induced Asian Financial crisis of 1998 that was further compounded by SARS up to 2003 when the residential price index dropped from 180 down to 60 and then the impacts of the Lehman Brothers collapse in 2008/9 when the same index dropped from 125 to 100.
Today we have seen this index go as high as 300 by 3Q 2015 but has now retreated to 270 in response to impact on the World’s financial markets of China’s economy, the second largest in the world, growing at the slowest rate for 25 years as it attempts to transition from an export-led nation to one led by consumption and services. This slow down, as we all know, has created considerable uncertainty in financial and currency markets and has in turn led to sharp falls in commodity prices.
As the IMF says: ‘China faces an “overwhelming agenda” of structural reform that will take time to implement.’ and with Moody’s now downgrading the outlook for both China and HK from ‘stable’ to ‘negative’ on the back of China’s February export figures slumping by 25% I doubt anyone in this room will be banking on a meaningful recovery any time soon?
My own view is that these ongoing external influences will continue to result in further corrections in house prices such that the urgency for government to find huge amounts of land for sale will be greatly reduced, particularly, if you agree with my predictions on population growth. Going back to affordability I think the HKHA/government should consider building a higher percentage of subsidised flats for sale to help first time buyers get onto the housing ladder. As for the private sector, three of the major property development companies have between them over 90 million sq.ft in their land banks as overall in the NT there are some 4,000 hectares of agricultural land, only 15% of which is being actively farmed with the rest lying fallow. Add to this the vast areas of brownfield sites some of which could be rezoned so my answer to the question posed in the title to this talk is ‘False’!
Having prepared this, I was minded to re-title it to ‘Lies, damned lies and statistics Hong Kong style’ as a parody of that famous phrase describing the persuasive power of numbers, particularly the use of statistics to bolster weak arguments!
The term was, as you probably know, popularized by Mark Twain who attributed it to the British PM Benjamin Disraeli, although the phrase is not found in any of his works with earliest appearances being in the late 19th Century, years after his death.
Any way, I will leave you to be the judges of that and look forward to your challenges and questions.
Roger Nissim is author of “Land Administration and Practice in Hong Kong” 4e, Hong Kong University Press.