Abstract

Housing is one of the most critical aspects of any city, and it is imperative that every government puts this into consideration. The cost of housing is dependent on the economic structure and standards within a given region. Hong Kong, for instance, has been reported as one of the areas with the most expensive housing market. In 2017, Hong Kong’s score was at 18.1, about six points ahead of any other city. According to Demographia, Sydney came second with a multiple of 12. The high cost in Hong Kong is even more alarming when compared to the likes of New York and London. Two main reasons for this include the ratio of supply to demand and the fact that the government controls most of the land. As such, the developers would take advantage of the situation to either make more money than usual or ensure that they make reasonable profits after acquiring the land at a high price. This paper will present some of the policies that the government should consider to increase the affordability.

Keywords: Housing, supply, and demand, multiple scores

The Unaffordable Housing Crisis in Hong Kong

Introduction

Shelter is one of the basic needs that every citizen should be allowed to enjoy. A housing may be defined as the construction and usage of structures to shelter. Every country has a housing policy designed to make sure that the people enjoy a decent shelter. The cost of housing varies with regions or countries because of different economic structures and standards. Most governments strive to ensure that the price of a home is affordable for everyone. The affordability of this need can be measured in comparison with the average income of most people. Demographia International Housing Affordability Survey is a company that tracks these measurements in most of the cities across the globe. The results from each city are then ranked annually to see how they compare. Hong Kong’s housing market has been listed as the most expensive for the better part of the last ten years.

The most relevant theory that can explain why Hong Kong’s housing is unaffordable to most citizens is the relationship between supply and demand. In any business environment, prices depend on how the demand and supply compare. A combination of low supply and high demand usually end up as a nightmare to the consumers. The housing services available will tend to be very expensive because many people need them, and that is the case with Hong Kong. Another explanation is the fact that the government controls most of the land that can be developed. The land is, therefore, made available to developers through tenders. As such, the property sells at record amounts, something which has a ripple effect on the overall cost of housing. For instance, a couple of Chinese developers parted with $2.17 billion for a piece of residential space. The buildings erected by these people will have to be sold at a very high price if they are going to make reasonable returns. This paper will focus on the policies that the government can implement to ensure that the prices drop.

Literature Review

Housing is among the most significant factors that affect the success of an individual, the city, and also the country at large. For instance, if a person has a home that costs him or her more than ten times their annual salary, there are bound to be financial difficulties in that household. Therefore, it is essential that one considers the revenue they can make before choosing a place to live. As such, they will be able to sustain their families without much difficulty. However, in some cities, people do not have better options than the ones available. For instance, in Hong Kong, finding a cheap and decent home is next to impossible; hence people are forced to overspend on shelter. Demographia the average income of each, and the average cost of housing to determine the final score of a given city. The method applied in finding the multiple scores of each city is crucial in this discussion because with that, one will know the specific aspects leading to unaffordable housing.

Demographia uses the average gross annual income from the sampled household in its calculations. The resulting value is then used to divide the average house prices, and the outcome is used in the rankings. In 2017, Hong Kong had a value of 18.1. Here is an example of how this can be interpreted; if one makes $40,000 per years, the cost of their house would be anything around $720,000. That is by far the most expensive housing market in the world keeping in mind that the closest market is Sidney with a multiple scores of 12.1. New York and London are two of the biggest financial hubs in the world, but their scores were 5.9 and 8.5 respectively. These values are way below half of Hong Kong’s market score.

Based on the calculation and the explanation above, we can conveniently say that the ratio of the housing cost to the total income of an individual is the most significant aspect. If there is a massive gap between the value of the houses and the gross salary (with the cost of housing being on the upper side), the final score will be significant. Therefore, two general ways can be done either by the government or other private sectors while dealing with the issue of affordability. The costs of the housing can be reduced, or the salaries of each individual can be increased. The latter is quite difficult to pull because someone’s wages are subject to many things. Some of the elements include their skills, the company they are working for, and the position which they represent. So it is only reasonable to state that the only variable that can be affected with ease is the cost of the housing.

The amount of money asked for by the sellers is also subject to certain political and economic factors. As stated earlier, the demand versus supply ratio and the government’s control over most of the land are the main ingredients of the situation being experienced in Hong Kong. The fact that Hong Kong is one of the busiest places in the world, many people seek residence in or around the city. There are many people in need of shelter, but the disadvantage is that the current constructions cannot satisfy the demand. In such an environment, the suppliers tend to raise their prices, and the consumers have no choice but to abide. The government’s control over the mainland has also had an enormous impact, and it is one of the root causes.

According to CNBC’s Saiidi (2017), Hong Kong has the most tax-friendly economic structure in the world. The reason is that the government gains most of its revenues from the sale of some assets, and land is one of them. If the values of the properties the government sells drop, then the total revenue will significantly reduce. As such, the government will not be able to fulfill its regular tasks without increasing the taxes. From the consumer’s perspective, there will not be many changes regarding the total expenses. The extra amounts paid for the housing will only be shifted to other needs like food and clothing, but the total cost of the requirements will remain more or less the same.

The taxation policy could be one of the solutions considering the explanation given above. Although the extra amounts will only be shifted to other needs, it will have a much-needed effect in the sense that the cost will be distributed across many products and services. Sometimes it looks easier to solve a problem in small chunks rather than taking it as a whole. The fact that land rates are high because of low taxation means that there is a possibility of having a balanced economy. The current condition is not fair because the most percentage of the taxes that could have been paid is channeled to housing. Public housing, which includes rentals, is one of the cheapest services in Hong Kong. Therefore, this means that someone who chooses public housing will pay less ‘taxes’ compared to someone who decides to buy and own private home. However, distributing these costs to other sectors will partially solve the problem because the developers will then buy land lower prices. The ripple effect will be felt by the citizens who decide to buy a house for their convenience.

Another factor that needs an urgent solution is the demand versus supply ratio. It is quite difficult to reduce the demand without implicating the normal business operations within the city. Supply could, however, be increased significantly after the cost of the mainland has been reduced. Most investors are not sure if putting their feet into housing business is a great move given the value of the land. If the prices are decreased, many developers will come into play, and that will be a good thing for everyone. The government could also offer to sponsor some of the developers as a way of pushing for the high housing supply.

Conclusion

In conclusion, housing is a very crucial aspect of any society. The cost of housing has an impact on an individual’s financial standards. In all countries and cities, there is a housing policy meant to ensure that every citizen’s wellbeing is safeguarded. However, policies implemented in some areas in the world tend to have a more negative impact on the people than the intended positives. Hong Kong is one of those countries, and it has the most expensive housing market across the globe.

The government’s tax policy is the primary cause of the housing crisis in Hong Kong. The Hong Kong government implements an economic structure that ensures that the citizens pay the least amount of taxes possible. This idea would seem quite advantageous to everyone within the area, but it is not all good. The government raises the money that would have otherwise been paid in the form of taxes from selling some of its properties. One of these assets is the mainland that can be developed to a residential area. The government sells plots of land to developers at a very high price, which then makes the developers sell their houses at an equally high price. The only party that suffers in this scenario is the consumer. The costs could be distributed across other sectors in the form of taxes to lift the pressure off those who would love to own private homes.

Reducing the cost of the land will have a direct impact on the developer’s decisions regarding the prices. The developers will buy the plot at a reasonable price, and the housing customers will also enjoy the same. It would also open the door for those who wish to invest in the industry but cannot afford the starting capital. As such, the government will be killing two birds with one stone in the sense that both the supply and average cost issues will be as good as solved.

References

Saiidi, U. (2017) Here’s Why Hong Kong Housing is so Expensive. Cnbc.com. retrieved from www.cnbc.com/2017/04/09/heres-why-hong-kong-housing-is-so-expensive.html

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