Housing affordability in Hong Kong

Housing affordability is a topical global issue and nowhere in the world has the argument about affordability been more protracted and intense than in Hong Kong. Despite efforts to address the challenge of housing affordability in Hong Kong, significant progress is still required to address the needs of the population.

At EY*, we challenge ourselves to ask better questions of our colleagues, EY clients, and our community. The questions we pose are: how can the Northern Metropolis Development Strategy be delivered in a way to reduce the housing issues in Hong Kong? And once a new housing supply is available, through what means should it be allocated?

This paper examines the flow-on effect of the housing affordability issues in Hong Kong on middle and low-income households, reviews the government’s effort to address the housing shortage, and explores how the Northern Metropolis provides an opportunity to address some housing market issues using innovative financing and delivery initiatives. We recognize that this covers only a small fraction of the total effort required to develop and deliver an integrated housing strategy that meets the needs of the Hong Kong people, who are struggling to secure comfortable and affordable housing.

It is clear, that simply relying on new land supply as the means to resolve the housing crisis, may not be the only answer. The recent 2022 Policy Address shows that the Hong Kong SAR Government has housing as a top priority. We hope this paper will assist in implementing some of the strategies put forward in that document.

Hong Kong is one of the most expensive cities in the world. In Hong Kong, the median home price is 23.3 times the median annual wage, according to a 2021 survey, which compared housing affordability in over 92 metropolitan housing markets in eight economies1. This represents the highest housing-to-income multiple of all markets studied. More worryingly, Hong Kong has topped this list for 12 consecutive years.

Measures have been introduced in an attempt to better control the speculation of residential properties, such as restricting some mortgages and giving priority to local Hong Kong purchasers, however, these have had less than the desired effect in preventing further spikes in house prices or alleviating affordability issues. Loan-to-value Ratio (LVR) caps have been in place for a number of years through the Hong Kong Monetary Authority (HKMA), although these have been loosened in 2019 and again in 2022. Currently for properties less than HK$10 million the maximum LVR for mortgages is 90%2. However, restricting mortgages is just one approach to controlling demand for housing and does not address the supply issue.

For those wanting to get on the housing ladder, there are two primary options – purchase from the private housing market or, subject to eligibility, purchase a Sale Flat (SSF) from the government at below-market prices. Due to the limited number of SSFs, only a small number of households can take advantage of this program, therefore the Hong Kong market is bifurcated between Public Rental Housing and Private Ownership.

It is worth noting that while renting from the private housing market may be a popular alternative in a number of international housing markets, this is less so in Hong Kong where only around 21% of the population are living in private rental housing. Despite a long-standing and extensive public housing program, the average waiting time for a public housing flat in Hong Kong rose to 6.1 years by March 2022, the highest since 19984. The wait time is currently 6.0 years.

Long-term and sustainable housing options for low and very low-income households are limited by the shortage of land supply in Hong Kong. Renting or buying from the private housing market is generally out of reach for these households.