Price Elasticity Case Study

There are some reasons that may affect the decrease of price elasticity of supply among the three districts. Theoretically, the land restriction and increase in the transaction cost will cause a negative effect on the elasticity through different channels. The insufficient land resources in Hong Kong will physically limit the housing supply, but the land sale system makes it even worse. The land sale system in Hong Kong restricted the supply of land by abandoning regular selling after 1998. There are other problems such as the lack of a brown field land policy and the difficulty in assembling the brown field land due to the fragmented ownership. Thus a lot of land remains idle. Moreover, stopping the New Town development and the HOS negatively
The Different Effects in Different Locations

The results show that the negative effect on supply elasticity in Hong Kong Island was lower than in Kowloon and NT districts. This may because of the location. Hong Kong Island is the traditional commercial center in Hong Kong and has the highest land value. Since the redevelopment of the old buildings is profit driven, the higher price of the output implies a higher profit margin. The higher potential value for the new buildings will provide greater incentives for a redevelopment project.
Of course, there are other factors affecting the redevelopment projects. The ownership of the building, development ratio of the land and also the expectation of the future price will be the main concerns for those undertaking redevelopment. Some redevelopment projects cannot proceed because the developer is unable to acquire the ownership. But provided the same conditions, the redevelopment project will more likely be initiated in the higher value location. This research shows that the value of the land may affect the redevelopment speed and momentum and mitigate the negative effect of the policies.

5.6. Policy
Mayo and Sheppard (2001) show that the uncertainty from the planning system will lead to the use of land bank for the developer. Keeping the land bank is strategic behavior for the land developer for several reasons such as lowering the cost and taking advantage from the future price. The use of land bank can help the company to maintain a more flexible strategy to deal with uncertainty and take advantage of the potential gain from the option-like characteristics of the land. The outcome of this would become the social cost. Even if the government sells out the land, the developer may just keep it idle rather than immediately start