Cutting Red Tape to Catch Up with Shortfalls in Land and Housing Supply
April 20, 2020 Part One: Private Housing Supply Housing supply faced a head-on crash and will have bumpy rides ahead
Actual and projected completion of private residential units [1] 22,000 2018 estimate: Annual average completion during 2018 - 2022 20,800 units 20,000 2019 estimate: Annual average completion during 2019 - 2023 18,500 units 18,000 2020 estimate: Annual average completion during 2020 - 2024 16,000 16,000 units
Number of units of Number 14,000
12,000
10,000 2016 2017 2018 2019 2020 2021 2022 2023 2024 Actual completion Projected completion
Note: [1] Starter Homes units included. Sources: Rating and Valuation Department, and Our Hong Kong Foundation. 3 A high level of accuracy is evident in OHKF’s past forecasts
Rating and Valuation Number of units Department’s OHKF’s estimate completed estimate 2016 14,595 18,200 17,700
2017 17,791 17,122 20,200
2018 20,968 18,130 20,800
2019 14,093 [1] 20,415 18,500
2020 - 20,850 17,000
Note: [1] 450 Starter Homes units included. Sources: Rating and Valuation Department, and Our Hong Kong Foundation. 4 A broad-based miss in 2019 completions
Behind the miss in 2019 housing completion: Negative Domino effect on supply during 2020 - 2024 Industry-wide slowdown
Delayed completions have been observed in both large and small projects, suggesting a general construction slowdown in the industry
Examples of delay
Mount Regency: 1,017 units
63 Pokfulam: 350 units Project delays may become more common if construction activities show no signs of L’Aquatique: 198 units picking up
Sources: Company data from various developers, and Our Hong Kong Foundation. 5 Future completion unable to catch up with past shortfall
Completion of private residential units [1]
1990 - 2006 2007 - 2012 2013 - 2019 40,000 Average: 26,000 units Average: 9,900 units Average: 14,700 units 35,000 2020 – 2024 30,000 Estimated Average: 25,000 16,000 units 20,000 18,00000 units
Number of unitsof Number 15,000
10,000
5,000
-
Note: [1] Starter Homes units included. Sources: Rating and Valuation Department, Buildings Department, Lands Department, Town Planning Board, company data from various developers, and Our Hong Kong Foundation. 6 A cumulative shortfall of 23,300 units in the past seven years
Shortfall in the completion of private residential units,
2013 - 2019 [1]
20,000 Supply target as specified in 2017 LTHS: 18,000 units Cumulative shortfall: 23,300 units 2013-2019 Average: 14,700 units 15,000 (≈1.8x Taikoo Shing Estate)
10,000 Number Number of units
5,000
- 2013 2014 2015 2016 2017 2018 2019
Note: [1] Starter Homes units included. Sources: Rating and Valuation Department, Buildings Department, Lands Department, Town Planning Board, company data from various developers, and Our Hong Kong Foundation. 7 Manifestation of supply shortfall: Rising property prices and shrinking living space
Private housing price index vs. per capita living space for private housing resident
[1] 29 June 2018 210 Centa-City Leading Index (LHS) Per Capita Living Space for Private Housing (RHS) Chief Executive 220 Carrie Lam introduced six 22 February 2013 housing policies 190 Introduction of Double 19 May 2017 Stamp Duty; Mortgage tightening mortgage tightening 27 February 2015 27 October 2012 Mortgage tightening 170 Introduction of Buyer's 16 October 2019 215 Stamp Duty; further tightening on Special Mortgage relaxation for
x Stamp Duty first-timers S
150 quare feet 10 June 2011 Mortgage tightening
130 19 November 2010 210 Introduction of Special 14 September, 2012 Stamp Duty; Mortgage tightening mortgage tightening Index (1997=100) Index 110 13 August 2010 x Mortgage tightening
90 23 October 2009 205 Mortgage tightening x
70
50 200 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Note: [1] Average living space is calculated as average unit size divided by average number of persons per unit. Sources: Centaline, Hong Kong Monetary Authority, Transport and Housing Bureau, Census and Statistics Department, and Our Hong Kong Foundation. 8 Spade-ready sites for private housing development did not recover from previous nosedive
Spade-ready land supply for private housing 25,000 -53% from 20,000 the peak 15,000
10,000 Number Number of units
5,000
0 [1] 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 Government land sale Railway projects URA projects Private development & redevelopment Note: [1] Figure for 2020/21 is based on Government’s forecast adjusted with the average shortfalls between supply forecast and actual land supply for 2013/14-2019/20, which is approximately 30%. Sources: Lands Department, Development Bureau, and Our Hong Kong Foundation. 9 Superstructure commencements went into a freefall
Number of superstructure commencements vs. number of units completed two years later Year of completions 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 25,000 -44% 20,000 from the peak
15,000 Number Number of units 10,000
5,000 Completions (top axis) Notification of Commencement of General Building and Superstructure Works (bottom axis) - 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Year of superstructure commencements Source: Buildings Department. 10 Reduction in presale consents issued signalled fewer private homes available in the near future
Total number of residential units with presale consent issued 25,000
20,000 -35% YoY
15,000 of of units
10,000 Number
5,000
0 2013 2014 2015 2016 2017 2018 2019
Source: Lands Department. 11 Slowdown in supply is witnessed in every step of the development cycle
Land acquisition Construction
Property sale
Estimated number of units on spade-ready sites in 2019/20: Completion 12,190 No. of superstructure commencements in 2019: -16% since 2018/19 12,690 -53% since 2017/18 No. of presale consents -44% since 2017 issued in 2019: 14,140 No. of units completed in Average development cycle [2] 2019: (from land acquisition to construction completion) -35% YoY A record low in 4 years 14,093 [1] 4.5 years ➔ 8 years -33% YoY (present) (by 2024) A record low in the past 4 years Notes: [1] 450 Starter Homes units included. [2] The average development cycle is calculated based on 268 housing projects that are to be completed in 2020 to 2024. Sources: Development Bureau, Rating and Valuation Department, Buildings Department, Lands Department, Centaline, and Our Hong Kong Foundation. 12 Sai Kung, Yuen Long and Kowloon City will be the top three districts in upcoming supply
Private housing completion in 2020 - 2024 by district
Sources: Rating and Valuation Department, Buildings Department, Lands Department, Town Planning Board, company data from various developers, and Our Hong Kong Foundation. 13 Rezoning and railway had been the two biggest land sources, but what is next?
Land sources ranked by the highest completion contribution
Before Now In another 5 years (2015 - 2019) (2020 - 2024) (2025 - 2029)
1 Rezoning (30%) 1 Railway (25%) 1 Rezoning The last resort …by the Government (21%) …by private developers (9%) Slow as usual 2 Redevelopment (28%) 2 Redevelopment (25%) 2 Redevelopment
If there is no delay 3 Reclamation (18%) 3 New Town & NDA (20%) New Town & NDA
Depleting quickly 4 Railway (16%) 4 Rezoning (20%) Railway …by the Government (19%) The only reclamation …by private developers (1%) ongoing is Tung Chung 5 New Town & NDA (8%) 5 Reclamation (10%) Reclamation New Town extension
Sources: Lands Department, Development Bureau, and Our Hong Kong Foundation. 14 Railway land bank is depleting quickly
Railway property development tenders that have been awarded or Property development packages will be awarded: awarded in the past 5 years Estimated number of Expected tender private housing units award date Kam Sheung Road 1,040 2024-2025 Package 2 Pat Heung Maintenance 6,060 Under review Centre
Siu Ho Wan Depot 4,200 [1] Under review LOHAS Park Station ~2,500 2020-2021 Package 13 Wong Chuk Hang ~1,500 2020-2021 Packages 5 & 6
The remaining landbank of 15,300 units from the railway tenders cannot last for many years
Notes: [1] There will be a total of 14,000 units for Siu Ho Wan Depot according to the latest planning proposal disclosed. Assuming a development approach of 30/70 split in units for private and public housing, Siu Ho Wan Depot might supply 4,200 units for private housing at a conservative estimate. Sources: Various newspapers, MTR Corporation, and Our Hong Kong Foundation. 15 Sites that involved rezoning by private developers take considerably longer to be developed
Development cycle of Double Cove (23+ years) Housing yield: 152 units per year (3,500 units/23 years) Pre-construction stage (20 years) Construction stage (3-6 years)
1990s 1997 2009 2010 2013 2014 2015 2016 Outline Zoning Henderson Land Plan was approved Construction of acquired farmland in Land premium Phase 1 Phase 2 Phase 3 Phase 4 and by Town Planning Double Cove Wu Kai Sha was settled completed completed completed 5 completed Board commenced
Development cycle of Wings IIIA and IIIB (5 years) Housing yield: 205 units per year (1,028 units/5 years) Pre-construction stage (1-2 years) Construction stage (3 years)
2011 2012 2013 2016 SHK Properties purchased SHK Properties purchased Construction of Wings IIIA and IIIB Wings IIIA and IIIB the site for Wings IIIA in the site for Wings IIIB in commenced completed public tender public tender
Sources: Buildings Department, company data from Henderson Land Development and Sun Hung Kai Properties, and various newspapers. 16 Regulatory red tape is holding back housing development
Why Have Housing Prices Gone Up? Edward L. Glaeser, Joseph Gyourko, Raven Saks • Suppliers are prevented from building additional houses to respond to high housing prices • The major causes are regulatory requirements, such as land use controls and zoning procedures • Regulatory tax imposed on the whole society, sustains high housing prices in the US
The possible case of regulatory tax in Hong Kong’s housing market?
House Price = Regulatory Tax + Construction Cost + Land Cost + Developer Profit
Time cost (e.g. Prolonged and repeated sessions of public engagements) Monetary cost (e.g. Substantial land premium on lease modification) Implicit cost (e.g. Development density being cut down)
Sources: Edward L. Glaeser, Joseph Gyourko, and Raven Saks. 17 Our observations so far
The housing supply cliff already came 01 Future housing completion is expected to remain low
Call for expediting all current land supply initiatives Accelerating present initiatives on land and housing development and 02 improving relevant procedures are key to alleviating housing shortage
Excessive regulatory processes could be costly Academic research suggests that regulatory requirements are like tax 03 to the citizens as it slows development
We need to cut the red tape along the land and housing development process! 18 Our Recommendation: cutting the red tape along the land and housing development process
1 Empower a central team to provide one-stop facilitation on all planning and other land development applications A Central Team formed by multidisciplinary government officials
Central Team for the Land Sharing Pilot Scheme: An example that highlights the need for effective coordination to expedite housing projects. Delegation & Empowerment Accountability & Mandate
One-stop helpdesk to advise Charged with the responsibility on rezoning application and to ensure the land development facilitate other development process is on track and matters on schedule
19 Our Recommendation: cutting the red tape along the land and housing development process
2 3 4 Define a clear review / approval scope for Set statutory timeframe for Simplify land lease development / building review / approval of all types plans across departments of plans
5 6 7 Set land and housing supply Avoid duplication in public targets, with clearly defined Better utilise land zoned consultations responsibility for their for Comprehensive delivery Development Area (CDA)
8 9 10 Optimise the determination Leverage information Increase funding for work mechanism of land technology to improve work related to land development premiums efficiency
20 Part Two: Public Housing Supply Public housing supply still misses target by a wide margin of 32%
Completion of public housing units 80,000 1990/91 - 2006/07 2007/08 - 2012/13 2013/14 - 2019/20 Average: 31,000 units Average: 15,300 units Average: 16,200 units 70,000 2020/21 - 2023/24 60,000 Estimated Average: 50,000 20,400 units 40,000 LTHS target: 30,100 units 30,000 28,000 units Missing
Number Number of units the target 20,000 by 32% 10,000 -
[1] [2] [3] [4] Notes: PRH & GSH HKHS PRH HOS HKHS SSF [1] PRH and GSH refers to Public Rental Housing & Green Form Subsidised Home Ownership Scheme units developed by the Hong Kong Housing Authority. [2] HKHS PRH refers to Rental Estates and Rural Public Housing and Senior Citizen Residences Scheme developed by the Hong Kong Housing Society after 2018/19. [3] HOS refers to Homeownership Scheme units developed by the Hong Kong Housing Authority. [4] HKHS SSF refers to Subsidised Sale Flats Projects, Flat-for-Sale Scheme, Sandwich Class Housing Scheme and Senior Citizen Residences Scheme before 2018/19 developed by the Hong Kong Housing Society. Sources: Transport and Housing Bureau, Hong Kong Housing Society, and Our Hong Kong Foundation. 22 A cumulative shortfall of 82,600 units in past seven years
Shortfall in the completion of public housing units, 2013/14-2019/20 30,000 Supply target as specified in 2017 LTHS: 28,000 units Cumulative 25,000 shortfall: 82,600 units 20,000 (≈11.2x Choi 2013/14 - 2019/20 Average: 16,200 units Hung Estates)
15,000 Number Number of units 10,000
5,000
- 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 PRH & GSH HKHS PRH HOS HKHS SSF 23 Sources: Transport and Housing Bureau, Hong Kong Housing Society, and Our Hong Kong Foundation. And a further 66,000 units shortfall expected in the next ten years
Completions 4 Years 10 Years (Number of units) (2020/21 - 2023/24) (2020/21 - 2029/30)
2018 LTHS target (a) 126,000 [1] 315,000 [1]
2019 LTHS target (b) 120,400 [2] 301,000
The Government’s forecast (c) 81,400 [3] 272,000
OHKF’s forecast (d) 81,400 249,000
(a-d) 44,600 66,000
Notes: [1] The figures are the Government’s targets for the four-year period starting from 2019/20 to 2022/23 and ten-year period starting from 2019/20 to 2028/29 respectively, as started in LTHS Annual Progress Report 2018. [2] Assuming that the total housing target stipulated in the LTHS is evenly distributed over the ten-year period. [3] The figure may not be the same as the Government’s figure stated in Public Housing Construction Programme 2019/20 to 2023/24 due to rounding. Sources: Transport and Housing Bureau, Rating and Valuation Department, and Our Hong Kong Foundation. 24 The average waiting time for PRH is likely to be over six years
Average waiting time for general PRH applicants 7.0
6.0 5.4
5.0
4.0
3.0 Number Number of years 2.0
1.0
0.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Key assumptions: recovered PRH units of 13,200 units per year (same as past five-year average); new PRH and HOS completions of 20,400 units per year; new addition of general applicants of 20,300 per year (same as past three-year average); 50% of HOS units to be allocated to Green Form (same as current practice) and 69% of allocable units to be assigned to general applicants (same as past five-year average). Sources: Hong Kong Housing Authority, and Our Hong Kong Foundation. 25 75% of public housing units experienced delays in the past five years
Number of public housing units have experienced delays
(85%) 25,000 23,107 Delay represents 75% of public housing units in 20,000 the past five years (88%) 15,000 14,224 (92%) (75%) 12,259 11,146 10,000 (36%) Number Number of units 6,829 5,000
0 2015-2016 2016-2017 2017-2018 2018-2019 2019-2020 Year of completion
Note: The bracketed percentage are percentages of units delayed out of the total public housing units completed in that year. Sources: Hong Kong Housing Authority, Legislative Council, and Our Hong Kong Foundation. 26 73% of past delays in public housing came from rezoned sites
Land sources of delayed public housing units, 2015/16 - 2019/20 100% 7% 2% 90% 17% 13% 29% 80% 70% 20% 20% 60% 50% 100% 100% 40% 71% 30% 60% 61% 20% 10% 0% 2015/16 2016/17 2017/18 2018/19 2019/20 Rezoning Redevelopment New Town / NDA Others
Sources: Hong Kong Housing Authority, Town Planning Board, Legislative Council, and various newspapers. 27 Rezoning will continue to be the major land source, which will cause more delays in public housing completions
Completion of public housing units by land sources, 2020/21 - 2023/24
9%
19%
61%
12%
Rezoning Redevelopment New Town / NDA Others
Note: The individual figures combined may not add up to the total due to rounding. Sources: Hong Kong Housing Authority, Town Planning Board, Legislative Council, and various newspapers. 28 Rezoning progress has been very slow
Potential rezoning sites identified by the Government grouped by rezoning status
As of the Completed [2] In progress [2] Rejected Not yet started beginning of [1]
132 15 2020 5 64 (189,800 units) (11,600 units)
129 13 2019 4 70 (185,400 units) (11,400 units)
+3 +2 Change +1 -6 (+4,400 units) (+200 units)
Notes: [1] Rezoning status as of 31 January 2019 and 31 January 2020 respectively. [2] Bracketed number are the number of units supplied by the site. Sources: Development Bureau, Task Force on Land Supply, Transport and Housing Bureau, Town Planning Board, and District Councils. 29 Islands, North District and Tuen Mun are the top three supply districts for public housing
Public housing completions in 2020/21 - 2023/24 by district
Note: The individual figures combined may not add up to the total due to rounding. Sources: Transport and Housing Bureau, and Our Hong Kong Foundation. 30 Case study on delay in public housing projects: the junction of Sung Wong Toi Road and To Kwa Wan Road, Mau Tau Kok
The junction of Sung Wong Toi Road and To Kwa Wan Road, Ma Tau Kok The Government stated its intention to rezone the site out from a larger CDA site Sep 2014 to a standalone public housing site
OZP was approved by the Chief Executive-in-Council (CEinC) and Apr 2016 the rezoning was completed
Could the site be developed earlier if the portion of animal Animal management centre (to be vacated by 2023) management centre was excluded at the time of rezoning or Intended public housing site if the schedule of land clearance be managed better? Proposed site for transitional housing Current status: Lok Sin Tong applied for short-term Jul 2019 If the site was developed tenancy for transitional housing projects immediately… Transitional housing Public housing 2021 2021-2023 [1] (100 units if successful) (600 units) Note: [1] Assuming that five to seven years are needed for relocation, site formation and engineering works. 31 Sources: District Council, Civil Engineering and Development Department, Town Planning Board, Lok Sin Tong Benevolent society, and Our Hong Kong Foundation. Case study on delay in public housing projects: the junction of Sung Wong Toi Road and To Kwa Wan Road, Mau Tau Kok
Aerial photo Ground photo
Sources: Our Hong Kong Foundation.
32 Case study on Delay in Public Housing Projects: Area 48, Fanling / Sheung Shui
Area 48, Fanling / Sheung Shui
The Government stated its intention to rezone the site for public housing. Part of the Jun 2014 site is owned by private land owners.
CEDD started site investigation and 2015 design for supporting infrastructure
OZP was approved by the CEinC and Jan 2017 the rezoning was completed Could the preparatory work for and the formal Current status: process of land clearance and land resumption be commenced as OZP already established the CEDD’s project design is still in purpose of public housing? progress, and land clearance and land Feb 2020 resumption has yet to be commenced. Public housing 2028 [1] (4,000 units)
Note: [1] Original expected completion date. Sources: District Council, Civil Engineering and Development Department, Town Planning Board, and Our Hong Kong Foundation. 33 Case study on Delay in Public Housing Projects: Area 48, Fanling / Sheung Shui
Aerial photo Ground photo
Sources: Our Hong Kong Foundation.
34 Case study on delay in public housing projects: Pik Wan Road Sites A & B, Yau Tong
Pik Wan Road Sites A & B, Yau Tong
Site A was rezoned to residential land use Before 2011 Was site A’s development being put on hold in order to wait for site B? Site B’s rezoning application was completed 2014 with OZP being approved by the CEinC Could the CEDD feasibility study take CEDD finished feasibility study for supporting place simultaneously with the rezoning 2015 - 2016 infrastructure on both sites process instead?
CEDD started site investigation and design for 2017 supporting infrastructure Current status: Tenders for Architectural, Building, Engineering Services and on Structural and Geotechnical Design Jan 2020 were awarded from HA Site A Expected delivery date from CEDD to HA following completion of land clearance 2023 (foundation work will commence afterwards) Site B Public housing 2026/27- (3,208 units) 2027/28 Sources: District Council, Civil Engineering and Development Department, Town Planning Board, and Our Hong Kong Foundation. 35 Case study on delay in public housing projects: Pik Wan Road Sites A & B, Yau Tong
Site B Aerial photo Ground photo
Sources: Our Hong Kong Foundation. Site A
36 Our recommendation: Improving the transparency and accountability of public housing projects
Comparison on the disclosure requirements between private and public housing developments Private Public Housing Housing One-stop Disclosure Land development Platform process Submission of building plan Commencement of construction A one-stop disclosure platform Completion of should be set up to disclose to construction the public the progress of individual public housing projects Handover of units
37 Part Three: Long Term Housing Strategy The LTHS has kept lowering its housing supply target
Changes of LTHS housing supply target 500,000 -73,000 Decrease Increase
13,500 450,000 24,900 -5,800 -16,600 7,0000
400,000 480,000 430,000
350,000 Number Number of units
300,000 Total housing0 Net increase in Households Inadequately Miscellaneous Vacancy Rounding Total housing supply target for the number of displaced by housed factors [1] adjustment supply target for the 10-year households redevelopment households the 10-year period from period from 2015/16 to 2020/21 to 2024/25 2029/30 Note：[1] Miscellaneous factors include private permanent living quarters occupied by households with mobile residents, non-local students who might take up accommodation in Hong Kong, and buyers from outside Hong Kong who might purchase flats without channeling them back to the market. Source: LTHS Annual Progress Report. 39 Net increase in households was artificially suppressed as private renters were forced to cramp into small flats Between 2006 and 2016: New completions of private residential units Resident population 126,000 511,000
No. of persons per unit：
Private Renter Private Owner 2.64 3.07 2.96 2.93 (+0.43) (-0.03)
Implications: • Multigenerational families are forced to squeeze into a small flat as they cannot afford the rising property prices and rents • The average number of persons per household was artificially inflated, and the demand for separate units was artificially suppressed
Sources: Census and Statistics Department, and Our Hong Kong Foundation. 40 A vicious cycle is formed as fewer completions lead to a lower demand projection
1 Low completion rate implies that there are fewer new houses for people to move out to 2 Average no. of people 5 Low supply target in a flat is pushed up results in low artificially completion rate
3 The increase of 4 Demand forecast household and supply target of formation is housing drop artificially subsequently suppressed 41 The existing LTHS model is “garbage in, garbage out”
Ten-year housing supply target stipulated in LTHS 500,000
450,000 OHKF’s projections
400,000 Number Number of units
350,000 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 LTHS Annual Progress Report Implication: The projected results suggest that the current methodology has failed to reflect the actual housing demand, thus will continue to project a lower housing supply target, dampening the Government’s initiatives for increasing land supply. Sources: LTHS Annual Progress Report, and Our Hong Kong Foundation. 42 Notwithstanding unmet past shortfall
Number of housing 2013 2014 2015 2016 2017 2018 2019 Total units
LTHS annual average supply 47,000 48,000 46,000 46,000 46,000 45,000 43,000 321,000 target
Actual completions [1] 22,300 25,700 26,500 29,000 31,500 45,200 32,600 212,800
Shortfall 24,700 22,300 19,500 17,000 14,500 -200 10,400 108,200
Note: [1] Public housing completions are based on financial year; while private housing completions are based on calendar year. Sources: LTHS Annual Progress Report, Hong Kong Housing Authority, and Rating and Valuation Department. 43 Our recommendation: reviewing the LTHS methodology and breaking the vicious cycle
The LTHS’s Housing Supply Target The methodology of the LTHS housing supply target projection should be Projection 1 revisited and evaluated to better reflect the reality
The LTHS Steering Committee should 2 be reconvened and tasked to conduct the review on the LTHS methodology
44 Past shortfalls and downward revisions in LTHS targets combined is even larger than the three planned NDAs
Past shortfalls from LTHS target for 2013 - 2019 Kwu Tong North & Fanling North NDA 108,200 units (71,800 units)
Downward revisions in LTHS target for 2014 - 2024 Yuen Long South 80,000 units (28,500 units)
Hung Shui Kiu NDA Aggregate loss from past shortfall from and (61,800 units) downward revision in LTHS target 188,200 units Total: 162,100 units
Sources: Development Bureau, Legislative Council, LTHS Annual Progress Report, and Our Hong Kong Foundation. 45 Thank you