HOLai-sangTammy

UniversityNo.:1996103832

URBA6006 SCIENCE OF CITIES

REVIEW ESSAY

A REVIEW ON THE LAND AND HOUSING SUPPLY IN HONG KONG

1. Introduction

Hong Kong has been undergoing ups and downs in its property market in

the past few decades. Considerable time and comprehensive planning

are required to make the provision of land and supply of housing take

place. WithrespecttotheGovernmentisthesolesupplieroflandinHong

Kong, Planning Department, 2016estimates the housing target by2026is a

provision of 460,000 units and a total of about 1,670 ha of housing land.

Due to the significantly dense population and shortage of land for

development, this review paper aims to review different researches

conductedforthe landandhousing supplyinHongKong.

2. Reviewon Comparisonand Contrast

There are generally three groups of stakeholders in these research studies,

namely (1) households who consume and look for housing, (2) property

developerswhoinvestinhousingdevelopmentandseekforprofits,and(3)

Government who imposes appropriate balance between consumer

surplus, developer profitability and other considerations like transportation

network, social welfare, public facilities, etc. Review on these studies are

mainly focused on aspects of (1) demand and supply equilibrium, (2)

planningcontrols and(3) transportation.

2.1 Demandand supplyequilibrium

Various researches in the past decade have conducted in the

demand and supply equilibrium of land provision. A few are

selectedfor review.

Both Huang, 2015 and Hui, 2014 in their individual research analyses

whether an increase of residential land supply would lead to

increase of housing supply. Both result that new housing

completion is independent of the land supply by the Government

meaning that there is no guarantee on increase land supply that it

would directly increase the housing supply. Owing to the fact that

when the internal rate of return decreases, developers would

inevitably hold up their land and pending the development for a

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better time of investment return. In this regard, developers’

approach in land banking would not solve the problem housing

shortage even when the Government releases more land for

residential uses. Besides, it is understandable that being

commercially focused enterprises, developers’ behavioral

economics on rate of return also reduces its motivation to develop.

Despite construction delay is common in place, completion of

housing development also drops if the housing price increases.

Huang, 2015 advises that more land provision in districts of low land

prices would give more incentives to developers as urban areas

withhighlandpricesareheldup longer underthe study.

On other hand, Hui, 2014 summarizes the processes of housing

supply in Hong Kong. He reveals that apart from land sale, there

are other channels, e.g. land exchange, lease modifications, urban

redevelopment, etc., for provision land for housing. This research

analyses the inter-relationships and correlation between housing

supply and factors/channels for provision of land and results that

landexchange hasa longer termof influence on housingsupply.

Ng, 2015 considers the optimal provision of housing supply from

perspectivesof threedifferentkindsofstakeholdersandthehousing

development pattern as a result of optimization where households

maximize their consumer surpluses and developers maximize their

profits. The bid-rent model developed considers the process of

household’s housing location and their commuting behaviors, then

outcomesthe land use patternandresultantprices.

In terms of housing prices, Funke, 2013 assesses in his study the

impact of housing price cycles on Hong Kong’s overall economic

cycle and finds out that housing prices are much more sensitive to

internal temporal preference differences instead of the GDP and

otherconsumptions.

Zheng, 2018, on the other hand, investigates the effects of income

changes on the demand for the four different types of housing,

namely public rental, subsidized housing, private ownership and

privaterentalusingtheaffordabilityindicatorofrent-to-incomeratio

under the assumption that households would adjust their housing

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UniversityNo.:1996103832

requirements in case of income changes. It is resulted that the

median rent-to-income ratio for private rental housing is stable in

market-orientedeconomies of Hong Kong.

Lau, 2018 studies the increasing trend of micro-flats with saleable

floor area under 40 square metres since early 2010s. Including

further extreme cases of micro-flats, nano-flats of under 20 square

metres emerge recently are receiving attention from the society.

Apart from affordability issue, demographic trends on declining

household sizes also contributes to this growing demand of

micro-flats. Theseflatsaremostlylocatedinmoreaccessibleurban

areas which are convenient to employment and recreation.

Giventhesmallsize,therentismoreaffordable. Peoplelivingthere

aremostlyyoung working population.

2.2 Planning control

Two researches (Hui, 2003 and Yu, 2017) have been conducted on

how Hong Kong’s planning system affect the land and housing

supply as well as the property prices. Both researches state that

the Hong Kong Government uses the planning system to regulate

the land supply and development process of urban areas where

housing supply concentrates. Such regulations, including Building

(Planning) Regulations under Buildings Ordinance (Cap. 123) and

land use zoning plans under Town Planning Ordinance (Cap. 131),

on land supply impose restrictions on the total quantity of land, their

spatial location, how they are developed and the time of

development. Town Planning Board approves the planning

applications on residential development with respect to the

regulations imposed.

Yu, 2017 derives a discrete choice model to examine the decisions

made by the Town Planning Board taking into consideration of the

variables of site-specific, application-specific, zoning-specific,

housing policy-specific and market conditions while Hui, 2003

derives a regression model with planning and economic factors

affecting the housing prices. Yu, 2017’s model results that the

approvalratefromTownPlanning Boardonhighintensity residential

development is high. With higher plot ratio on intensified

development, more supporting infrastructure on transportation and

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social services on various kinds of public facilities are required. Hui,

2003’s regression model demonstrates the planning system has

significant impact on the housing market. All the planning

variables, like planning constraints, approval rate of planning

applications,affects the housingpricesstatistically.

Wang,2017studiesthetransitionsofnewtowns(TinShuiWai)tonew

development areas (Hung Shui Kiu) in Hong Kong where new towns

aim to provide housing for increasing population while new

developmentareas are no longer confined to housing provisionbut

with diversified functions on employment as well as sustainable

planning concepts. Such concepts include open space,

ecological protection and improvement of living environment.

Withallthesenewdiversifiedfunctionsonplanning,theprovisionsof

developable land for housing and the cost of developments are

affected.

2.3 Transportation

Several researches are also conducted to evaluate the impact of

transportation accessibility on the property prices. He, 2020

mentioned that accessibility brought by new rail lines create new

activity opportunities. The gravity-based model reveals that the

MTR accessibility was statistically significant meaning that

households tend to value the convenience brought by the railway

and are willing to pay a higher rent or premium with good

accessibility to railway. Commuting cost is somehow diminished

and compensated by housing rent and living space in

comparatively high accessibility areas. Capitalization of public

services where close to the railway system is also resulted with

railwaynetwork.

The Hedonic Price Model derived by Jayantha, 2015 suggests that

the anticipated transport improvement also imposes a positive

impact, as kind of expectation effect, on the property values near

thenewrailwaysystem. Thetransportimprovementvariableatthe

model reveals that the properties in proximity of the new

Shatin-Central Line results in increases in the property price. The

spatial price andrentgradient nearthe study area is alsochanged.

Moreover, the gentrification and further displacement of original

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UniversityNo.:1996103832

households as a result of improvement of railway accessibility gives

rise in property value and decrease in sense of community in He,

2021’s study.

Huai, 2021 develops a household bid-rent and residential location

choice model to evaluate the monocentric and polycentric urban

structure. The modelaimstoevaluate thelocationequilibriumand

finds out that accessibility improvement capitalized the high

housing rent which reduces the affordability by households.

However, it is noted from the research result that railway

accessibility is the most effective way to bring in convenience to

household if the district is not self-contained with sufficient

employmentfor itshouseholds.

Yang, 2018, on the other hand, examines the impact of walking

accessibility on property prices. Though the study area is not Hong

Kong, the regression model reveals that the accessibility of walking,

being a brand new mode of travelling for future sustainability, also

increasesthe property values.

3. Conclusion

Given the fact that household’s asset are locked up by housing property,

property market and the overall economy in Hong Kong are inter-related.

Debates on how to maintain sufficient supply of land and housing in Hong

Kongnever ends. With focusesonthe(1) demandandsupplyequilibrium,

(2) planning controls and (3) transportation aspects of review, we notice

that some of the land sold to private developers are held up as land bank

which are not readily available for development into housing for

immediate use by households. Certain planning restrictions in form of

zoning and other building requirements, like open space, public facilities,

being enforced have increased the cost of development which have

unavoidably lower the supply of land and higher the property prices. To

stabilize the amount of housing supply, the Government, through new

lease terms and modification/exchange terms, has been requiring the

lessee of land to complete the residential development within a

reasonableperiodoftime. Togetherwithrenewalprojectsinurbanareas,

the Government now, hopefully, should have clear control on the amount

of housingsupply inthe upcoming years.

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