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How should we view the home supply-demand gap?

Amid the trade friction between China and the United States, the local debate over extradition arrangements and other international and local issues, it is easy to forget that Hong Kong has some serious domestic problems to sort out.

Perhaps surprisingly, the major issue of land and housing has calmed down since the Task Force on Land Supply ended its public consultation and delivered its report earlier this year.

Perhaps the other hot issues have pushed it to one side. We have also seen something of a correction, and subsequent uncertainty, in the local private housing market. Indeed, other cities around the world with sky-high housing prices have seen things cool down. This is a reminder that to some extent global factors are at work, and asset prices cannot zoom up forever.

Hong Kong still has a problem with housing – no-one would doubt that. But there are different opinions as to whether this is a “crisis” which will soon become a major challenge again, or if demand and supply levels will roughly stabilize so we can muddle through.

On the pessimistic side, there is a view that the city’s land bank is being used up at such a rate that the supply of new housing (public or private) will inevitably drop quite sharply in a few years’ time.

Our Hong Kong Foundation has conducted a study that suggests this is where we are heading.

The analysis shows that we have already accumulated a shortfall in housing supply – it estimates we delivered 99,000 too few public and private units in 2013-2017 alone. Although supply will rise for a while, the study forecasts a sharp reduction in supply in around four or five years’ time.

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The report gives separate figures for private and public housing, and it incorporates the government’s decision to shift the public-private mix from 60:40 to 70:30. But as it points out, the exact distribution between public and private housing is not really the point – they are all flats that people need to live in. The key is the total volume of units. As it is, the study expects a shortfall of 85,000 public housing units alone in the next 10 years.

The researchers believe this looming shortage needs immediate attention. Long-term plans involving reclamation will take too long to have an impact on this specific problem.

They think the problem could be relieved somewhat with faster rezoning of sites – a process that currently takes four or five years. But they are skeptical about using “brownfield” sites because so many of them are occupied by logistics-related businesses. They also see limited potential for conversion of factory space and industrial land, as these use relatively small amounts of space.

Not everyone agrees with all of these conclusions. Looking at the big picture, we could ask whether Hong Kong really needs to accommodate so many space-hungry logistics activities. If the owners of those sites were given the chance to build apartments on them, what would they decide?

This leads us to the more optimistic end of the scale. There are many variables that we cannot easily measure, let alone forecast.

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Where space is concerned, we do have extensive brownfield, agricultural and village land. Some of this land is splintered into small parcels or in inconvenient locations. But zoning and land premium policies also reduce their usefulness.

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The details might be tricky, but some observers believe we could unlock significant amounts of land for housing if we rejigged the administrative and financial incentives for landowners.

Then we have the demand side. We are seeing continued development in the mainland, improved cross-border connectivity, a noticeable increase in cross-border marriages and living, and we can expect economic and social integration as the Greater Bay Area becomes a reality.

The bottom line is that there is no guarantee how things will work out. The pessimistic analysis may be too gloomy. But we would be foolish to disregard it.

Source: By Bernard Chan

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