Cutting Red Tape to Catch Up with
Shortfalls in Land and Housing Supply

Our Hong Kong Foundation (OHKF) has released its latest Land and Housing Policy Research report today with the title ‘Cutting Red Tape to Catch Up with Shortfalls in Land and Housing Supply’. The report forecasts a persisting low supply of private housing in the next five years after a supply cliff emerged in Hong Kong in 2019. In addition, the report predicts that the supply of public housing over the next four years will still fall short of the target set by the ‘Long-Term Housing Strategy’ (LTHS) by over 30%. With a worrying shortage in both public and private housing supplies, the housing crisis is expected to deepen. The OHKF recommends the Government to make every possible move to expedite the pace of land development, and to increase housing supply by removing red tape involved in the process.

The Emergence of a Private Housing Supply Cliff and the Anticipated Trough

A private housing supply cliff already appeared in 2019, when only 14,093 private residential units (including ‘Starter Homes’ units) were completed. It not only reflected a decline by 33% as compared with the figure in 2018, but also missed the Government's own forecast by 30%. Such shortfall was mainly attributed to the slowdown of private residential construction activities. Starting from the second half of 2018, an overall decline has been observed in all stages of the development cycle, from land acquisition through construction. Spade-ready land supply, superstructure commencement, and pre-sale consents all recorded a sharp drop of 35%–53% from their high points in the past year or two. With the depleting land reserve available, the deceleration in the spade-readying process has made matters worse.

Considering the above, the OHKF predicts that the number of private residential completion in the next five years (between 2020 and 2024) will average only about 16,000 units per year, which is 14% down the prior forecast of 18,500 units per year (between 2019 and 2023). Looking ahead into 2025 to 2029, land supply is expected to be even scanter.

Recommendation 1: The Government Should Remove the Various Administrative Red Tape Involved in Land Development

In view of varying degrees of delay in the development of New Development Areas (NDAs) or new towns, rezoning is the only reliable way to alleviate the current land supply shortage. The greatest challenge, among all, is overcoming the time-consuming bureaucratic procedures for rezoning led by private developers.

The OHKF recommends the Government to expedite all existing land development projects, including but not limited to land rezoning, NDA development (partially through land resumption), the Land Sharing Pilot Scheme, urban redevelopment, topside development of railway, large-scale land reclamation; and to review, evaluate, and streamline the existing administrative procedures for land development. For the Government’s consideration, the OHKF puts forward ten recommendations that are championed by industry practitioners:

1. Empower a central team to provide one-stop facilitation on all planning and other land development applications
   

2. Define clear review / approval scope for development / building plans  across departments
   

3. Set Statutory timeframe for review / approval of all types of plans
   

4. Simplify land lease
   

5. Avoid duplication in public consultations
   

6. Set land and housing supply targets, with clearly defined responsibility for their delivery
   

7. Better utilise land zoned for Comprehensive Development Area (CDA)
   

8. Optimise the determination mechanism of land premiums
   

9.  Leverage information technology to improve work efficiency
   

10.  Increase funding for work related to land development

Recommendation 2: The Government Should Create a One-stop Disclosure Platform for Disclosing the Progress of Public Housing Projects

The estimated average number of public housing supply in the next four years (2020/21 to 2023/24) is 20,400 units per year, which is 32% below LTHS’s target. In the past seven years, public housing supply has not reached its target in any given year.  The cumulative shortfall of 82,600 units is equivalent to 11.2 Choi Hung Estates combined. In the next decade (2020/21 to 2029/30), the OHKF estimates a further shortfall of 66,000 public housing units with an increasing average waiting time for a Public Rental Housing flat that is expected to surpass the six-year mark very soon.

It is also worrying that the rezoning progress has slowed down significantly. Since 2013, the Government has identified a total of 216 sites with rezoning potential, mostly for the construction of public housing. However, only 132 among those sites had been successfully rezoned as of January 2020, and only three of them were completed in 2019. The rezoning process for 64 sites has not yet started still.

To add to the complexity of the problem, the development of rezoned sites into spade-ready land would still be faced with different hurdles in the spade-readying process. Scrutinising three public housing projects in Ma Tau Kok, Fanling, and Yau Tong respectively, the OHKF found that these cases illustrate how housing projects may not proceed smoothly beyond the stage of rezoning due to delays in different subsequent procedures (including facility and land clearance, land resumption, and engineering studies). As a consequence, construction could not commence on time.

The OHKF believes that the Government should improve the transparency of public housing projects so that government departments can become more responsible and committed to implementing timelines. The Government needs to establish a one-stop disclosure platform to publicly reveal the progress of individual public housing projects, including the relevant land development procedures, building plan submission, and the commencement and completion dates of constructions.          

Recommendation 3: The Government Should Reconvene the LTHS Steering Committee for Reviewing the Methodology Used in Housing Demand Projection

The supply outlook is dire, yet the Government has still grossly underestimated Hong Kong's future housing demand. The OHKF believes that there is a problem within the current methodology for estimating the growth of the number of households by the LTHS when projecting housing demand, which sends the LTHS supply target into a vicious cycle of continuous downward adjustment.

The vicious cycle begins with insufficient unit completion, which, in turn, reduces the opportunities for existing households to split and move out to new units. This results in an artificially inflated average number of people per household as well as suppressed household formation figure, followed by a reduction in both housing demand forecast and supply target. A lowered supply target eventually leads to continued shortage of housing completions, paving the way to another cycle.

It is expected that the LTHS’s housing supply target will continue to decline in the next few years if the current methodology remains unchanged, which is not conducive to the Government's plans to increase land supply. Besides, the LTHS is ignoring past shortfall. When updating its ten-year supply target every year, the LTHS does not consider making up the accumulated shortfalls in the preceding years. If actual housing demand continues to be underestimated, the housing crisis will only become more severe. The OHKF therefore proposes to reconvene the LTHS Steering Committee to review the methodology used.

As Mr Stephen Wong, Deputy Executive Director and Head of Public Policy Institute of OHKF, pointed out: ‘There is not only a dearth of “bread” (housing) but of “flour” (spade-ready land) too. The “flour-making machine” is also operating more and more poorly over time, which is a worrisome situation. We hope that the Government will do its best to speed up land development projects and reform the cumbersome administrative procedures, so that we may ease the current predicament.’

Mr Ryan Ip, Head of Land and Housing Research, OHKF, also said: ‘There is a gap between the LTHS and reality. The crux of the issue is that the projection used today cannot reflect real housing needs. To put such a vicious cycle into an analogy, it is like asking a hungry man to eat even less as he was used to being starved. There is no other way to break this cycle than to reconvene the LTHS Steering Committee and review the methodology used in projecting long-term housing demand.’

 

Full report of ‘Cutting Red Tape to Catch Up with Shortfalls in Land and Housing Supply’

Chinese version: https://bit.ly/2yvnmIB
English version: https://bit.ly/3cw7Smr

Presentation slides: https://bit.ly/2XNVLwZ
Case studies video: https://bit.ly/3eDj5U2