Jasmine writes*
For 12 years, Hong Kong has been ranked as the world’s most unaffordable city (Delmendo, 2024). We often hear that this is due to a land shortage, but is that really the reason? In Hong Kong, only 3.7% of the land is zoned for urban housing (Four Facades, 2020). Though rocky terrain is unsuitable for building, there is still a lot of other space. The issue is not a shortage of land, but poor management (Vox, 2018).
Much of Hong Kong’s economic success is credited to low taxes, but low tax revenues force the government to rely more on land sales: Between 19% and 27% of the government’s revenues came from leasing land in 2016 to 2019 (OECD, n.d.).
The government owns all of Hong Kong’s land, which it leases to developers in auctions that set crazy prices, like 20.8 billion HKD to lease 48,000 square meters of land (USD 55,000/m2) for 50 years. Those high prices mean that developers must charge insane prices for tiny rooms (Arcibal, 2021).
This system generates revenue for the government, but it lowers Hongkongers’ living standards. A median-priced apartment costs 20 times median household’s gross income (Wong, 2022).
To tackle this problem, Hong Kong needs to free up more space, but those big auction earnings — which are only justified when housing prices are high — make change unlikely. A senior governor official said that “the sheer size of interest groups in Hong Kong is the root of the problem” (Caixin Global, 2021).
Bottom Line: Hong Kong’s housing problem stems not from land scarcity but from an economic dependence on property sales for revenue, which works to control the city’s politics.
* Please help my Real Donut Economics** students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice 🙂
** Why “Real”? In short, because (a) Raworth’s claims to being a “21st century economist” denies that all of her ideas were presented by others in the 20th century and (b) she presents no viable mechanisms (besides “be nice”) for achieving equality and sustainability. My students are more realistic. In long? Read this.
A very interesting example of the government engaging in fairly aggressive rent-seeking, which is reciprocated gratefully by private sector rent-seekers! I wonder whether you expect the increasing direction of Hong Kong government and politics by mainland China to have any impact on this issue – will an external government feel less attachment to local special interests or will it accommodate them to help its power in the area?
Great blog post Jasmine! This is an issue that I had never learnt the specifics about, so it was a most interesting read. I am interested to hear, what types of solutions (or failed ideas) circulate around the housing crisis. Are they feasible? And if this problem is not solved, how quickly will Hong Kong become an impossible place to live? So many questions, and so excited to hear you answer them (if relevant) in your research paper!
Hey Jasmine, interesting post, thanks! When you say ” Hong Kong needs to free up more space” do how do you think this is feasible with sustainable goals and problems of deforestation? Do you think in this case social policy is more important than the environment or is there a solution to making more space sustainably? Thanks!