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Preamble

Insufficient Land Supply leading to Imbalance in Supply-Demand

Land shortage has been plaguing Hong Kong in recent years. The society at large is suffering from multi-faceted problems with "pricy", "tiny" and "cramped" living conditions, characterised by soaring property prices and rents; the difficulties in purchasing the first home; and all sorts of problems associated with overcrowded living space, inadequate community facilities, and high business operating costs. Insufficient land for housing, economic and other purposes has become one of the major issues of great concern to the public.

Hong Kong has a mountainous topography. Of the total land area of 1,111 km2, 24.3% (270 km2) is built-up area, with the remaining 75.7% (841 km2) being not-for-development or non-built-up area consisting mainly of country parks, wetland, reservoirs, fishponds, etc. The built-up area includes housing (6.9%), infrastructural facilities (5.9%), economic land (2.7%), government and community facilities (2.3%) and open space (2.3%) etc. (Figure 1). Over the decades, Hong Kong has undergone major shifts in social and economic structures. Planning and land development have always been challenging, not only in ensuring adequate and timely supply of land in tandem with the population, community and economic growth, but also in providing land to meet different development needs.

According to the Census and Statistics Department (C&SD)'s latest population and domestic household projections (Figure 2), Hong Kong's population and households are projected to continue to increase. As stated in the baseline case of population projections, the overall population is projected to increase until it peaks at about 8.22 million in 2043 and then to drop slowly to 7.72 million in 2066. Nevertheless, due to the declining average household size, the number of domestic households will increase at a faster rate than the population; this is estimated to rise from 2.51 million in 2016 to a peak of 2.97 million in 2046, and then down to 2.95 million in 2051.


Figure 1: Land Utilisation in Hong Kong
Source: Planning Department
Remark:
  1. The land use data was compiled using satellite images dated December 2016 and January 2017 [©AIRBUS DS (2016, 2017)], in-house survey information of the Planning Department up to end-2016 and other relevant information from various government departments. As definitions of some land use classes and methodology are updated from time to time, the figures this year may not be comparable directly to those provided in previous years.
(Figure 1)
Figure 2: Hong Kong Population (1966-2066), Domestic Households and Average Household Size (1966-2051)
Source: C&SD and Task Force on Land Supply (TFLS) Paper No. 02/2017
Remark:
  1. Projected population from the results of the Hong Kong Population Projections 2017-2066 published by C&SD in September 2017.
  2. Projected domestic households and average household size from the results of the Hong Kong Domestic Household Projections up to 2051 published by C&SD in October 2017. As such, the projection figures for 2056, 2061 and 2066 are not available.
(Figure 2)

Despite the demographic changes, Hong Kong's land supply has not kept up with the growth in population, number of households or the sustained economic and social development during the same period. Whilst the built-up land in Hong Kong has been rising steadily since 1970s to cater for the needs arising from the population and continuing economic growth, land development since the turn of the millennium has slowed down in response to the Asian Financial Crisis in 1997 and the subsequent economic downturn. As a result, the increase in developable land, housing flat supply and space for economic activities has been lagging behind the continued growth in population and households. Neither did land development keep pace with the economic recovery thereafter.

Land development has virtually come to a halt since 2005. Over the past decade, the area of built-up land has remained almost the same, leading to a shortage in different kinds of land.

Figure 3: Total Area of Built-up Land
Source: Development Bureau
Figure 3

As shown in (Figure 3), land supply in Hong Kong continuously increased during the 1980s and the 1990s. The area of built-up land in Hong Kong increased by 6,000 hectares (ha) (one ha is about the size of a standard football pitch) between 1995 and 2005, but the corresponding figure for 2005 to 2015 greatly shrunk to a mere 400 ha. Taking reclamation as an example, between 1985 and 2000, over 3,000 ha of land were created through reclamation, i.e. an average of about 200 ha (i.e. 2 km2) per annum. Over the next 15-year period between 2001 and 2015, only about 690 ha of land, or an average of some 40 ha per annum, were reclaimed, representing a decrease of 80% (Figure 4)

Figure 4: Statistics on reclamation
Source: Civil Engineering and Development Department
Figure 4

In fact, land development of Hong Kong is inextricably linked with the development of new towns. Six new towns, including Tsuen Wan and Sha Tin, were developed in the 1970s, while the second-generation new towns of Tin Shui Wai and Tseung Kwan O were developed in the 1980s. However, the pace of land development started to slow down significantly in the 1990s, and only Tung Chung New Town, the smallest amongst these new towns, was completed in this period (Figure 5). After the 2000s, no more new town was developed in Hong Kong. Looking ahead, apart from the Tung Chung New Town Extension, the next new town (or new development area, "NDA") will be the Kwu Tung North and Fanling North NDAs, which are expected to be completed in stages starting from 2023.

Figure 5: Timeline of New Town Development in Hong Kong (from the first completion onwards)
Figure 5

Impact of Land Shortage

The severe shortage of land supply inevitably creates a series of livelihood issues that directly impact the daily life of citizens.

For housing, the insufficient land supply has directly led to a shortage of housing land; as a result, housing completion, whether public or private, have dropped dramatically.

Between 2007 and 2016, the average annual housing completions amounted to merely 25,700 units, down by over 50% from the corresponding figure for the preceding decade (an annual average of 59,800 units) (Figure 6).

Figure 6: New Residential Unit Completions by Property Type
Source: Rating and Valuation Department and Housing Department
Figure 6

Given the drop in housing completion, property rents and prices have seen substantial growth in the past few years.

According to the Rating and Valuation Department (RVD)'s March 2018 figures, the overall price and rental indices for private domestic properties reached a high point in 2017 of 333.9 and 182.6 respectively (100 in both indices in 1999) (Figure 7). As at end-2017, the vacancy rate of private domestic properties was about 3.7%, which was much lower than the long-term average vacancy rate of 5.0% from 1996 to 2015.

Figure 7: Rental and Price Indices for Private Domestic Properties (1985-2017)
Source: RVD and C&SD
Figure 7

The problem is particularly acute in the public housing sector. The average waiting time for general applicants for public rental housing (PRH) is as high as 4.7 years.

As at end-December of 2017, there were about 155,100 general PRH applicants (i.e. family and elderly one-person applicants) and about 127,800 non-elderly one-person applicants under the Quota and Points System. The average waiting time1 for general applicants is

Waiting time refers to the time taken between registration for PRH and first flat offer, excluding any frozen period during the application period (e.g. when the applicant has not yet fulfilled the residence requirement; the applicant has requested to put his/her application on hold pending arrival of family members for family reunion; the applicant is imprisoned, etc.). The average waiting time for general applicants refers to the average of the waiting time of those general applicants who were housed to PRH in the past 12 months.

4.7 years, exceeding the Hong Kong Housing Authority (HA)'s target of providing the first flat offer to general applicants at around three years on average. Meanwhile, public demand for subsidised sales flats remains strong. Since resuming the sale of Home Ownership Scheme (HOS) units by HA in 2014, all the projects have been oversubscribed. An example is the HOS project launched recently in 2017: the some 2,100 units offered were oversubscribed by almost 49 times.

Inadequate land supply and high property price have made housing in Hong Kong increasingly unaffordable.

According to the latest survey conducted by Demographia, an international public policy consultancy, Hong Kong has been ranked the world's least affordable city to buy a home for eight consecutive years. The property price is 19.4 times household income.

Given the high rent and shortage of affordable housing, some grass-root families are left with no choice but to rent sub-divided units (SDUs) in an unsatisfactory living environment, or even SDUs in industrial buildings; the safety of these units is questionable. According to the C&SD's 2016 Population By-census, there were close to 93,000 SDUs in Hong Kong as at 2016, accommodating a population of some 210,000.

While property prices and rents remained high, Hong Kong's per capita floor area of accommodation was only 161 square feet (sq. ft.) and the median floor area of accommodation of domestic households about 430 sq. ft. in 2016, according to figures of C&SD.

As for Government, Institution or Community (G/IC) sites, it should be noted that Hong Kong's population is rapidly ageing, with the percentage of elderly persons (those aged 65 and above) expected to rise from 16% in 2016 to 31% in 2041 and 34% in 2066 (Figure 8). The ageing and growing population will further increase the demand for G/IC facilities such as hospitals, clinics, elderly care centres, elderly homes, parks, etc.

Figure 8: Elderly Population (aged 65 and above)
Source: C&SD
Figure 8

As for land for economic use, after a modest cumulative growth of 9% in real terms between 1997 and 2003, the Gross Domestic Product (GDP) of Hong Kong grew rapidly by about 33% in real accumulative terms between 2006 and 2016. However, during the same period, floor space for economic activities only recorded a modest increase.

As such, rental and price indices for various types of commercial and industrial properties all showed an upward trend. In 2017, the rental indices of offices, retail and flatted factories were 241.8, 182.5 and 190.5 respectively, whereas the price indices of these properties were 487, 558.9 and 778.5 respectively; all these indices were very high as compared to those of recent years (Figure 9). Meanwhile, the vacancy rates of various types of commercial and industrial properties have been on a steady decline in recent years.

Figure 9: Rental and Price Indices for Industrial and Commercial Properties (1985 - 2017)
Source: RVD and C&SD
Figure 9

High rents for industrial and commercial properties drive up operating costs for businesses, and severely undermine the competitiveness of Hong Kong. According to the International Institute for Management Development World Competitiveness Yearbook 2017, Hong Kong ranked second-to-last in the "Prices" category among the 63 economies covered in the analysis. Meanwhile, according to a study by the global property consultant CBRE, the rent for Grade A Offices in Central of Hong Kong was the most expensive in the world for the past two years (Figure 10).

Figure 10: Rental Cost of Grade A Offices in Major Cities
Source: CBRE
Major City Monthly rent per foot (HK$) 2017 Ranking 2016 Ranking
Hong Kong (Central) 197 1 1
London (West End) 139 2 2
New York (Manhattan) 132 3 9
Hong Kong (West Kowloon) 124 4 5
Beijing (CBD) 119 5 4
Beijing (Finance Street) 111 6 3
Tokyo (Marunouchi/Otemachi) 105 7 6
New York (South Manhattan) 102 8 -
New Delhi (Rajiv Chowk) 100 9 7
Shanghai (Pudong) 87 10 10
Remarks: Based on a conversion rate of US$1 to HK$7.8


Increasing Land Supply: A Pressing Need

There is no quick fix for the land shortage problem of Hong Kong. Hong Kong has been adopting a multi-pronged approach to increasing land supply over the past few years. In the short to medium term, mainly by changing existing land uses and increasing development density, a total of over 380,000 residential units can be provided. In the medium to long term, various NDAs and new town extensions, as well as potential railway property development projects, can provide over 220,000 residential units and over 8.6 million m2 of commercial and industrial floor area. 

On the one hand, the Government should continue to adopt a multi-pronged strategy to increase land in a sustained manner. On the other, we need to increase our efforts to make up for the lag of supply in the past and the current shortfall.

The society must come up with adequate land supply to satisfy different needs such as more public and private housing, commercial floor space including shops, offices and space for business startups, social welfare facilities including elderly homes, healthcare facilities, recreation space, etc. As we tackle the current problem of land shortage, we must not lose sight of the future and the needs of our next generation. As planning and major land development often take over a decade to come to fruition, there is an urgent need for us to act now to boost land supply for Hong Kong, in order to cater for our needs in the short, medium and long term. We cannot be short-sighted, seeing only the trees and not the wood.


Task Force on Land Supply

Hong Kong's land supply is in shortage and land production takes time. There is no lack of ideas or strategies on how to increase land supply, but the society lacks a broad consensus on the pros and cons, trade-offs and priorities of the various land supply options. On this basis, the Task Force on Land Supply (the Task Force), comprising 22 non-official and eight official members appointed by the Chief Executive, was established in September 2017 for a term of one and a half years from September 2017 to February 2019. The Task Force is made up of members from various professional disciplines and sectors, including planning, engineering, architecture, surveying, environment, academia, think tanks, social services, housing development and district administration.

The Task Force recognises Hong Kong's land shortage problems at present and for the long term. It is making a macro review of the sources of land supply, evaluates land supply options, and has launched a public engagement exercise to engage the community in discussions on the pros and cons of different options and their priorities, as well as the trade-off between different options. The objective of the Task Force is to achieve the broadest consensus and draw up a broad framework of recommendations on the overall land supply strategy and a prioritisation of different land supply options for submission to the Government, based on the opinions collected in the public engagement exercise.

| Last Revision Date: 5 December 2018