Why Hk's Housing Policy Can't Solve the Problems

The high cost of housing in Hong Kong recently has attracted international attention once again. Not long after a report in the Economist that suggested Hong Kong was second only to Australia in terms of the extent to which housing is overpriced, a CNN video story, "Feeling Hong Kong's Property Boom," cited record low interest rates, lack of buildable land in a city of 7 million population, and hot money from the Chinese mainland, as driving forces behind the local housing boom. Regrettably, the recent punitive stamp duty on homes resold within two years of the original purchase is yet another factor, because homebuyers, trying to avoid the tax, effectively are keeping their units away from the market for at least two years. An unintended consequence of the policy to clamp down on speculation has artificially reduced supply and actually added fuel to the fire.
Last week the Financial Secretary announced that the SAR government will auction new parcels of residential land, or open them for auction, all within the April to June period. This would enable construction of some 2,650 dwelling units. Further, the Financial Secretary expects to announce additional land parcels to be put on auction or tender, on a quarterly basis. This is a welcome change and a necessary step to materializing the earlier pledge of providing no fewer than 20,000 housing units to be developed each year. Obviously, the application list mechanism is too passive to be counted on to achieve any production target. I have always advocated a yearly housing production target.
Unfortunately, about 70% of the units to be developed from the proposed land sales will be small or medium-sized units, according to Secretary for Development Carrie Lam. This was thought to meet more effectively the needs of the public, many of whom are first-time buyers, eager for low-priced units. The government has chosen to increase the supply of small to medium-sized units, and has chosen not to interfere with the