Hong Kong can’t build away high house prices
By Peter Thal Larsen
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Hong Kong’s plan to cool an overheated housing market by increasing supply sounds like repeating past mistakes. Even if the territory is able to boost construction as much as it intends, the expansion is modest. Property prices remain at the mercy of external forces.
The aftermath of the former colony’s last housing boom is a vivid memory for many residents. Following its return to Chinese rule in 1997, Hong Kong embarked on a building spree: the supply of private housing jumped 16 percent in five years. Unfortunately, the construction bonanza coincided with the twin shocks of the Asian financial crisis and the SARS epidemic. House prices halved over the same period.
Now Hong Kong’s chief executive Leung Chun-ying has set a target to increase the supply of housing over the next decade by 470,000, with 40 percent coming from the private sector. To achieve this, he has pledged to free up land for development and loosen planning restrictions to squeeze even more apartments into the same space.
Leung’s strategy is to make housing more affordable. Rising prices and rents are squeezing residents and fuelling popular dissatisfaction with the leadership and with Chinese rule. The price of a typical 50 square-metre apartment is now almost 15 times the median buyer’s annual income, according to the Hong Kong Monetary Authority. The ratio hasn’t been as high since 1997. Attempts to restrict mortgages and impose extra taxes on non-resident buyers have so far only affected demand for the most expensive apartments that are beyond the reach of most ordinary residents.
Yet the latest supply measures should not be exaggerated. The government’s target of 13,600 new private units a year amounts to growth of just over 1 percent in the market. Any significant cooling depends on higher U.S. interest rates – which will push up mortgage repayments and give investors an alternative source of income – and less capital flowing across the border from China. Until these change, Hong Kong can’t build away high house prices.