Let’s pretend it’s not structural

The Economist (probably paywalled) suggests that the decline in Hong Kong real-estate prices is not a passing phase…

Home prices have fallen by over a quarter since late 2021. In September they reached their lowest level in eight years; the number of unsold homes had already hit a two-decade high. Commercial property is in trouble, too. Office vacancy rates are at a 25-year high. Rental prices have fallen by 40% from a peak in 2019, according to Savills, a property firm.

…there are signs that this crisis is structural, not cyclical. Hong Kong faces doubt over its future. Draconian national-security laws and a lack of clarity about the city’s role within, rather than alongside, China’s economy have harmed its image overseas. Some of Hong Kong’s pillar industries have been wobbly. Funds raised on its stockmarkets in the first nine months of this year were less than 30% of the amount raised in the same period of 2018. The workforce has shrunk by almost 200,000 in recent years, a big fall in a city of 7.5m. Hong Kong contends with one of the world’s lowest fertility rates, and by 2040 a third of its population will be aged 65 or older.

As with those of pre-2022 administrations, Hong Kong’s top local policymakers seem unable to conceive of radical budgetary or wider economic reforms. Nor do they seem any more inclined to upset property-related interests. The people who could bring fresh ideas are either in jail or otherwise sidelined. The Beijing officials behind the scenes seem more interested in national security and patriotism than in fixing the city’s ‘deep-rooted’ problems.

Hong Kong property became among the most expensive in the world when China was booming and the city offered a unique and highly attractive package of Mainland links, financial and other skills, rule of law and a free press. So much has changed that some serious adjustment to government fiscal policy and the economy’s overall cost structure is inevitable. It’s not about being pro- or anti-high prices, ‘low taxes’, specific interest groups or anything else. It’s simply about accepting reality. (The unsold homes mentioned in the article would sell out tomorrow if the sellers cut prices.)

Yet top officials – who think panda bears and luxury shoppers are bold policy – still seem to think that finding ways to push real-estate prices up will bring the old days back. (There may be personal interests at play here as well: people whose families own several apartments can easily convince themselves that the economy depends on property rather than vice-versa.)

The ‘way forward’, as civil servants used to say, would include a 180-degree shift in official views to recognize the benefits and opportunities arising from lower property prices, and serious action to cut government costs (public-sector pay) and broaden the revenue base. Fat chance, of course.

A HKFP op-ed spells out basic facts about the HK47 trial: there was no law against either holding primary elections or using the legislature’s constitutional powers to reject a budget, nor would such a scenario create ‘chaos’…

Having removed himself to a safe distance, Jonathan Sumption (a very senior retired judge) put it bluntly. The Basic Law, he said, explicitly authorised the Legislative Council (LegCo) to reject the budget and force the city’s leader to resign. It now appeared that “LegCo cannot exercise an express constitutional right for a purpose unwelcome to the government.”

…the notion that sacking the chief executive would precipitate a “constitutional crisis,” paralyse the government or overthrow the system … is an entirely fictitious prospect drummed up to justify longer sentences. Whatever the organisers of the referendum may have dreamed, the Basic Law provides for a continued orderly and effective government at all stages of a bid to fire the chief executive. If there is no budget the government is authorised to continue with the old one. If there is no chief executive, another official takes over pending the election of a replacement.