Invasion of the Killer Land Premiums

Last night’s Chief Executive ‘election’ debate contain some flashes of authentic nastiness – almost like you would get in a real democratic campaign. Opinion polls and commentators’ comments clearly indicated that pan-dems/malcontents thought John Tsang came out on top, while shoe-shiners thought Beijing’s pick Carrie Lam did best.

Outside the auditorium, things get even less real. One of our friendly local property developers is offering a 270-square-foot apartment at HK$8 million – 11% more than a same-size unit in the same project a week ago. (The newsworthy flat is 40 floors higher, with views of the Himalayas, but we’ll let that pass.) The South China Morning Post calls this an ‘extreme display of price elasticity’. That economics phrase usually refers to how prices affect the behaviour of producers and consumers, otherwise known as ‘supply and demand’. Perhaps under these circumstances, it’s the other way round – how ‘greed and gullibility’ affect prices.

The Hong Kong housing market is getting deeper into a parallel universe’s black hole where time and space are not as we understand them. Government stamp duties have dried up the secondary market, while developers’ offers of financing have made new-build projects superficially more competitive. Mainland companies gorging on dollar-denominated assets are bidding up land prices, convincing the mentally deficient that this must force prices for finished buildings even higher. Oh, and developers are probably lying about some of their sales numbers and prices.

A worthy column calls for a radical approach to housing in Hong Kong. By ‘radical’, we mean ‘tweaking the housing ladder’. This means dividing the population up into different segments: the ones who can’t afford most sorts of housing; the ones who can’t afford even more sorts of housing; and the ones who can’t afford any kind of housing we can possibly think of. You then try to find a solution for each segment. But can’t.

The most daring idea is converting industrial buildings into residential rentals. Every other mature economy does this without fuss, but you can bet that our version must involve some extra-special Hong Kong-style freaking-out about The Dreaded Land Premiums that will tragically make it impossible in practice.

The land premiums are, after all (the article says), a major barrier to opening up older subsidized homes to the market. (Because otherwise it’s ‘not fair’.) And the land premiums similarly promise to complicate any requirement for private developers to include affordable units in their projects.

The writer eventually starts hallucinating about a situation where ‘housing for singles and the elderly could also be included in the mix and hence we could move towards building communities’. But, rest assured, the land premiums will mysteriously prevent any such bizarreness.

No word on getting rid of these land premiums, even though they seem to make the existence of affordable homes utterly impossible. Nor on getting rid of Disney Land, banning foreign buyers, or other lateral-thinking, radical, ways to fix the problem.

In a nutshell, the article (and the whole Hong Kong establishment) is saying: ‘The housing crisis is the cause of severe social disharmony, but we need a balanced solution, and we can’t find one because of land premiums – woe is me.’

 

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5 Responses to Invasion of the Killer Land Premiums

  1. Chris Maden says:

    Isn’t it odd that the same people who are calling for gwailo judges to be thrown out and an end to common law in Hong Kong are the very people who are inflating the property market because they can’t wait to move their money from China to Hong Kong because of the, er, common law system.

  2. Land gives one position and prevents one from keeping it up. That’s all that can be said about land.

    PS: Congratulations. This is the 1000th posting you have made about land!

  3. old git says:

    Housing prices are a function of the need for Government revenue. The Working Group on Long-Term Fiscal Planning has said:

    On the basis of an actuarial assessment on pension liability updated
    in October 2013, it is projected that the Government’s expenditure
    on public and judicial service pension benefits would increase
    gradually from $26.9 billion in 2014-15 to the peak at $50.9
    billion in 2032-33, when most of the pensionable officers would be
    retiring and receiving their lump sum pension gratuities over the
    period.

    It doesn’t take brain the size of Jupiter to realize that high housing prices support civil service pensions.

  4. Red Dragon says:

    Old git

    That’s all right, then.

  5. MeKnowNothing says:

    Pensions? Rubbish! All land money has gone to the Capital Works Reserve Fund since 1982.

    http://www.budget.gov.hk/2012/eng/pdf/cwrf-mem.pdf

    There was some stuff we truly needed that had not been built then, so this diversion of the indirect tax paid by all (as cost of land ends up in the price of all goods & services) wasn’t a problem as the money would have been spent to build them anyway. But now 35 years on, it goes to building white elephants & now we’re increasingly being told we have a dangerously narrow tax base that must be expanded or else HK’s doomed.

    What was a fantastic system to cover public expenditure in the Colonies after the Septic Revolution served HK well until Bremridge dicked with it. Now it is the root cause of everything that’s wrong with the place… that few seem to appreciate.

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