Community & Education Hong Kong

How Hong Kong’s soaring real estate prices give rise to a public housing crisis

As real estate prices in Hong Kong hit new records, Jojje Olsson examines how public housing holds up the other end of the market.

Behind the fancy skyline of Victoria Harbour, Hong Kong hides a larger income gap than any other developed economy on the planet. That’s according to the Gini coefficient, an internationally established measurement of income inequality. Hong Kong’s Gini coefficient is not only high but also indicates that inequality has been accelerating in recent years.

The real estate market is one reason that the rich have become richer. Financial services company UBS has reported that Hong Kong’s property prices increased by 340 per cent since 2003. Over the same time period, the real income of the city’s workforce barely went up at all. Faced with stagnating wages and a housing market that has tripled in value, many citizens can only dream about becoming homeowners.

fu cheong estate

Fu Cheong Estate. Photo: Jojje Olsson.

The steep price of property has forced almost half of the city’s population to live in public housing, which is highly unusual for the developed world. But income gaps and inequalities are by no means new challenges for the city’s real estate market, according to Kenneth To, Vice President of Hong Kong’s Institute of Planners, when I visited his office in Wan Chai.

“The need for public housing started when huge numbers of refugees arrived from mainland China after the Communist takeover in 1949. They came by the hundreds of thousands and lived, to begin with, in shacks rather than houses, which created slums,” said To.

fu cheong estate

Fu Cheong Estate. Photo: Jojje Olsson.

In Christmas 1953 a large fire broke out in Shek Kip Mei, one of the largest shanty towns at the time, which left about 53,000 homeless residents living on the streets. The disaster led the British governor to launch a project to construct multi-floor residential homes in the area in order to protect the refugees from typhoons, flooding and fire.

“The first buildings were restricted to seven floors because there were no lifts. The size of the apartments was about 120 square feet and they were rented out for about a fifth of the market price,” says Kenneth To.

Shek Kip Mei.

Shek Kip Mei. Photo: Jojje Olsson.

Between 1950 and 1970 the population of Hong Kong doubled from two to four million. Most of the new inhabitants were migrants from mainland China, seeking refuge from economic dislocation, starvation and political persecution arising from campaigns such as the Great Leap Forward and the Cultural Revolution. At the same time, Hong Kong’s economy started to take off, and the migrants were needed to work in factories throughout the city.

The situation created a rapidly increasing demand for housing. By 1972 the construction of public housing entered a whole new phase, with a decision to build homes for 1.8 million people in the coming decade. The next year it was also decided that many of those homes should be located in so called “new towns”.

shek kip mei

Shek Kip Mei. Photo: Jojje Olsson.

“The ‘new towns’ were modelled on English satellite towns. They were to be self sufficient, with a good social balance of inhabitants. The planning also included hints of the ideas of Le Corbusier, with big groups of high residential blocks separated by schools, hospitals, football fields and shopping malls,” says Kenneth To.

In all, nine new towns were built. Today they hold a population exceeding three million. Among the largest are Tseun Wan, Tuen Mun and Sha Tin, which house about half a million people each. Such large populations were made possible by building higher residential blocks. In the early 1970s, single or twin towers with more than 20 floors became commonplace in Hong Kong. Rectangular, oblong houses as tall as 27 floors were soon being linked together, and in 1981 Hong Kong broke the world record with a 38 storey public housing building.

While the new towns represented progress in  design, many of them were soon plagued by social problems. Many of the tenants were factory workers who got laid off as Hong Kong’s economy changed.

Kenneth To explains: “The biggest challenge with new residential areas was never the number of apartments, but schools, hospitals, infrastructure and above all working opportunities. The generation that used to work on Hong Kong’s factory floors seldom found new jobs in the suburbs, and the younger generation are also forced to look for work in the more central parts of Hong Kong.”

tin shui wai

Tin Shui Wai. Photo: Jojje Olsson.

The social fabric in the new towns was clearly different from that in the older parts of Hong Kong, where neighbours looked after each other through family businesses and long established networks of friends and contacts. The contrast couldn’t have been bigger to the new town of Tin Shui Wai, where 80 percent of the 300,000 citizens were placed in public housing units within just a couple of years.

A Hong Kong government report from 2013 estimated that the city’s population would increase by 593,000 people in the coming decade. With demographic changes taken into account, that equals a growth of 376,500 new households. By excluding houses slated for demolition, the report concluded that 470,000 new homes should be built by 2023 to house the new residents.

The target was repeated in 2015, with Chief Executive Leung Chun-ying saying that 480,000 new homes would be built during the coming decade, targeting developments in outlying areas such as Kowloon East and East Lantau, and reclamation projects between Hong Kong and Lantau islands.

tin shui wai

Tin Shui Wai. Photo: Jojje Olsson.

In the past, Hong Kong’s ratio of public and private housing construction used to be roughly 50-50. But the report from 2013 stated that about 60 percent of the new homes to be built by 2023 should be public housing, due to the ever growing number of applicants on the waiting list. As of September 2015, no less than 285,300 households were on the waiting list for public housing, far more than double the total in 2009.

The trend is no surprise, given the new and awkward records constantly being set in Hong Kong’s real estate market. The day before Christmas 2015, the most expensive apartment ever marketed in Asia was sold at 39 Conduit Road, fetching HK$594.7 million. Given its size of 5,732 sq ft, the apartment also broke the size-to-price-ratio record, coming in at HK$103,700 per square foot.

Indeed, Hong Kong boasts the world’s most expensive home prices per square foot, according to real estate brokerage CBRE, way ahead of London and New York. The tracking group Demographia also recently showed that the average home price is 17 times Hong Kong’s median annual income. That is 60 percent higher than the figure for Vancouver, second on the list.

There are very few regulations in Hong Kong covering the buying and selling of real estate, either concerning the nationality of the buyer or the number of apartments he or she may own. As a result, even secondhand home prices have more than doubled since 2008.

sham shui po

Sham Shui Po. Photo: Jojje Olsson.

The problems of buyers can also be seen in the trend towards smaller and smaller apartments. In 2014 developer Cheung Kong announced that they would offer new flats as small as 165 square feet. The next year a 180 sq ft apartment went on sale for almost HK$4 million.

According to Kenneth To, the demand for housing in Hong Kong is “bottomless”. But to plan new residential areas is not easy: “Apart from potential social problems it is also hard to find new land. Earlier [1953-1980] we built new units where slums had been standing, but today we must persuade farmers and villagers to sell their land. But the land is the only valuable asset these people have got, and they seldom find jobs if they move into a new apartment.”

In order to build new housing, Kenneth To says that the population density in the new towns will eventually have to be increased even further. But he also says the concept of constructing large swathes of look-a-like high rise residential buildings has been abandoned, as the scale of those projects started to become “inhumane”. The new focus is instead to build according to demographic and social needs, particularly in areas like Tin Shui Wai, where income is low and unemployment high.

sham shui po

Sham Shui Po. Photo: Jojje Olsson.

To get an idea of the conditions in the new towns, I visited Mike Ko, 31 years old, who was born and raised in Tuen Mun, one of Hong Kong’s biggest and oldest new towns. The apartment where he has spent three decades living with his parents and younger brother measures about 430 square feet. It consists of a living room, a small kitchen and a mini sized bathroom.

The living room occupies more than half of the apartment space. By putting up a thin wall, the family has divided the room into three parts; one bedroom for the parents and one bedroom for Mike Ko and his brother to share a bunk bed.

“Bunk beds are very common, almost a must, for families in public housing”, says Mike Ko, adding that the rent is about HK$1,200, which is less than half the market price.

Mike Ko also says that tenants in public housing are required to report their income to the authorities, as there is a limit to how much you can earn if you stay in public housing. If your salary increases, you can be subject to a higher rent, and if you earn “too much” you will have to move out altogether.

“The negative aspect of moving out is, obviously, the big price difference from the private rental market. And even though the difference is big in price, the quality of the private rentals is not necessarily much better,” says Mike Ko, who founded the tech start-up Timable with a colleague.

somewhere in kowloon

Somewhere in Kowloon. Photo: Jojje Olsson.

In 2013, he decided to share a private rental flat with his colleague in order to live closer to the office. There was another reason behind the move: “Today it is seen as a bit shameful to live in public housing, and moving to private housing has actually become a status marker.” Furthermore, in private housing, there is the possibility of getting your own room, separated from others by a proper wall, which is almost impossible for families living in areas such as Tuen Mun.

Mike Ko is not particularly pleased about the growing numbers of migrants from mainland China. He sees an obvious connection between sky-rocketing house prices and the influx of Chinese money, adding that the influx of Chinese migrants makes the waiting list for public housing even longer.

Indeed, in 2011, buyers from mainland China accounted for a record 42 percent of new apartment sales in Hong Kong, although the share has fallen in the last few years.

FACTS: Models and design

  • Mark I, built in 1954, was the first model of public housing in Hong Kong. The buildings had the shape of an H, with 60-72 units on each of the six or seven floors. A flat of 120 square feet was expected to house four or five people. Public toilets and washrooms were located in the middle of the building.
  • Mark II was designed with marginally bigger rooms, and Mark III was also built in the shape of an L or an I. With the introduction of lifts in the 1960s, the number of floors in Mark IV, V and VI increased to a maximum of 16. Many of the new apartments now came with private kitchens and bathrooms, as well as the possibility of air conditioning.
  • 1972 saw a target of constructing public housing for 1.8 million people in a mere ten years. Taller buildings were introduced in the shape of towers with 20 floors or more. Ventilation and light were provided by large holes in the middle of the buildings. Rectangular houses or units in the shape of a “double H” soon reached 27 floors, and in 1981 Hong Kong unveiled the tallest public housing unit in the world, reaching 38 storeys above ground.
  • By the early 1980s buildings in the shape of an Y grew increasingly popular. They were constructed up to 34 floors high with lifts running up the middle of the building. The design allowed each unit to have several rooms, at the same time keeping good ventilation and light. Also, they didn’t require much space, and were often preferred in the hilly terrain of the new towns.
  • In the 1990s, public housing was dominated by a model called Harmony. It was an independent building usually in the shape of an X. Standardisation of stairs, facades, walls and kitchens meant that the units could be built fast and cheaply.
  • A bigger priority was given to individual needs starting from around the year 2000. Harmony gave place to buildings that could be tailored for the age and size of the tenant family. More focus was also placed on optimising ventilation and light in different geographical positions. 

FACTS: Growing waiting lists

  • According to the Hong Kong Housing Authority, 4.7 percent of the population lived in public permanent housing in 2014. Public rental flats were home to 29,1 percent of the population, and 16,5 percent lived in subsidised sale flats.
  • In September 2015 the number of applicant households on the waiting list for public housing reached a new high of 285,300 compared to 114,400 in 2009. The number of applicants younger than 30 years old has increased more than fourfold since 2009. Two thirds of all the applicants now have higher education.
  • The category “young singles” under 35 years old now amounts to about half of the households, while the category “families and elderly” make up the other half. The average waiting time for a public housing flat is 3.6 years, but priority is given to elderly applicants who “only” have to wait for two years on average.
  • Similar to Singapore, Hong Kong has its own “Home Ownership Scheme” which allows tenants to eventually buy their housing. But the difference is huge: 95 percent of the public housing in Singapore has already been sold to tenants, but only about 100,000 flats, or a little more than a third of the public housing stock, has been sold under the scheme in Hong Kong since it was introduced in the early 1970s.

How Hong Kong's soaring real estate prices give rise to a public housing crisis