The Other Half: Hong Kong’s Housing Problem

Hong Kong is a city known for its extravagance. At its most luxurious, Hong Kong rivals New York, Paris, and London. At its worst, however, the city more closely resembles the developing world. The following photos were released by the Society for Community Organization, a Hong Kong activist group that hopes to raise awareness for the city’s housing crisis. They are reminiscent of How the Other Half Lives; exposing the harsh conditions endured by the poorest residents of a modern metropolis.

The photos depict the lives of the nearly 280,000 residents of Hong Kong who cannot afford decent housing. They instead live in tiny apartments with no bathroom or kitchen. These are the faces of Hong Kong’s housing crisis.

With 1.2 million people in poverty, Hong Kong’s poverty rate is 17 percent. While this is high, it is no where near the poverty rates in some U.S. cities (New York City’s is 20%). Hong Kong’s Gini coefficient is 53.3, that’s the 13th highest in the world between Paraguay and Thailand. The richest 10 percent of Hong Kong residents take home 40 percent of the total income — that’s more than the poorest 70 percent combined. Hong Kong has the highest level of income inequality in the developed world.

The worst, however, is in Hong Kong’s housing market. Housing prices have doubled since 2008. The average price per square foot in Hong Kong is $2.84. For comparison, the average price per square foot in New York is $1.17. Hong Kong has the 3rd most expensive real estate in the world. Meanwhile, median wages in Hong Kong have been stagnant since 2006. The explosion in Hong Kong property values has left many poor residents behind.

Roughly 1 in 3 residents live in public rental housing. And another 20 percent receive subsidies for their housing. While this is much lower than it was in the 1980s, the number of on the waiting list is now over 200,000. And it’s estimated that 3/4 of them have been waiting for more than 4 years.

The shortage of housing has created a market for low-cost housing. This includes subdivided flats, which are apartments that have been divided up into tiny rooms for beds. The per-square-foot rate for subdivided flats is $3.40 — residents of Manhattan’s Morningside Heights pay $3.00.

Subdivided apartments are legal and the regulations governing them are rarely enforced. For many apartment owners, renting out many subdivided apartments can be more profitable than renting out the apartment as is.

Many of the poorest live in stacked cages. These are essentially rooms that are filled with wooden compartments or wire cages. Some apartments contain 10 to 20 cages. Many others live illegally in abandoned factories or on rooftops, though this is becoming less common as the government has started cracking down on it.

The Hong Kong Government requires 5.5 square meters per person. Anything over that is considered “overcrowded.” Oxfam estimates that over 60 percent of those living in inadequate housing are in overcrowded conditions. These tiny apartments are not only uncomfortable, they are unhealthy.

A reporter for the South China Morning Post attempted to live in a subdivided flat. After just a week, she discovered that her air conditioner was filled with mould and spreading it spores into her room posing a serious health risk. This was likely due to the improper plumbing and poor ventilation that is common in subdivided flats.

The people living in these conditions include those who are unemployed, disabled, and recent immigrants. As home prices have skyrocketed and wages have remained stagnant, many were forced to move out of their apartments as rents were raised. While Hong Kong does offer public education, for many who lose their jobs later in life, learning more competitive skills is simply not an option. Hong Kong’s public housing does not extend to recent immigrants. Only those who have been residents for more than 7 years can qualify for public housing.

The housing crisis has attracted attention of Hong Kong’s chief executive, Leung Chun-ying, who says he will make solving the housing problem his “top priority.” It’s a good thing too. Experts and activists are pushing for reforms that shorten the waiting time for a public rental apartment and increased subsidies for rent payments.

Hong Kong residents have also not sat silently. In 2011, protesters called for the resignation of then Executive Donald Tsang. They demanded a resumption of construction of government-subsized housing and an increase in measures to slow the rise in home prices. Tsang eventually stepped down in response to an unrelated scandal.

The economic cause of Hong Kong’s extremely high property values are unclear. One major argument is a that it’s a simple supply-demand issue. Currently, only seven percent of Hong Kong’s land use designated for residential use and the unused land is owned by the Hong Kong’s government. Some suggest that the government has restricted the sale of its in order to raise property values and collect more from the sale of land tracts to developers. The Wall Street Journal reports,

The government has restricted land use to keep prices high so that it can collect more revenue when it sells tracts, said Alice Poon, a former executive at a Hong Kong real estate developer …

over-reliance on land-sale revenue for its fiscal health is the root problem of its land and housing policies

According to the Economist,

The biggest factor behind the rise in prices, though, is constricted supply. The government has a monopoly on land in Hong Kong, and it doles out more parcels for auction only when it deems fit. Since 2002 or so, observes C.K. Lau of Jones Lang LaSalle, a property broker, officials have maintained “extremely tight land supplies”. Less land at auction has inevitably resulted in fewer homes being built. In the 1990s new-home completions averaged about 23,000 a year. That figure has been only 10,000-11,000 a year of late

Another commonly cited reason is that the Hong Kong’s currency peg. Currently, the Hong Kong dollar is pegged to the U.S. dollar. 43 percent of goods imported to Hong Kong come from China. This means the Chinese Yuan’s appreciation against the US dollar has caused overall price inflation in Hong Kong. The peg (combined with the U.S. Federal Reserve’s loose monetary policy) also forces interest rates in Hong Kong down, this has further pressured housing values upward as investors seek higher return in Hong Kong’s historically fast-growing property market.

Recently, the government of Hong Kong is responding by instituting a number of measures to try to cool down the property market. These measures include, increasing the tax on foreign purchases of domestic property and instituting maximum loan-to-value ratios. It seems unlikely that this will be  enough to alleviate the problems of Hong Kong’s lower class.

Hong Kong is considered by the Heritage Foundation to be one of the most economically free places in the world. Milton Friedman once said “If you want to see capitalism in action, go to Hong Kong.” This is not capitalism. It certainly isn’t the same capitalism that drove economic growth in the U.S. for the better part of the 20th century. Or the same capitalism that pulled Europe from the rubble of two world wars. As a nation, Hong Kong has a responsibility to her citizens. The hundreds of thousands of residents who live in slum-like conditions are infinitely more important than the revenues of foreign investors.

Doing well is the result of doing good. That’s what capitalism is all about.

Ralph Waldo Emerson