Commentary: Out of reach? The unaffordability of housing fuelling the Hong Kong protests
While the protests were squarely directed at the controversial Extradition Bill in the beginning, it became clearer over time that there was deep dissatisfaction over the administrative failures of the Hong Kong government in meeting its people’s needs, says CUHK's Simon Lee.
HONG KONG: The Hong Kong government should seriously reflect on why 22 years passed after the handover, it hasn’t solved the housing problem but has let it fester and lead to social unrest.
Since June, the city has witnessed a number of demonstrations.
While the protests were squarely directed at the controversial Extradition Bill in the beginning, it became clearer over time that there was deep dissatisfaction over the administrative failures of the Hong Kong government in meeting its people’s needs.
Housing, employment and education have been widely debated, hot-button issues among Hong Kongers for decades, with “deep contradictions” in these areas pointed out many times by former Premier Wen Jiabao in the 2000s.
Can a Hong Kong youth afford a home? According to the Census and Statistics Department of Hong Kong, from 2004 to 2018, the nominal wage index across all jobs rose by 63 per cent, or 3.5 per cent per year.
This is higher than the rise in general costs of living. The Consumer Price Index (CPI), which takes into account changes in housing, food and transport, rose by 47 per cent or 2.8 per cent per year in this same period.
Still, when you look closer at the data, the rise in price of even the smallest residential flat was quite alarming.
An apartment 40sqm or smaller, which is close to the median apartment size based on Hong Kong statistics, rose by 420 per cent over the same period or 12.5 per cent per year.
At the end of 2018, the average selling price (per sqm) of a unit of 40sqm or less is about HK$129,823 (or US$16,500 in the further New Territories or suburban areas) to HK$175,079 (on Hong Kong Island or closer to the city centre).
These figures have since risen to HK$148,427 and HK$179,816 respectively – making the minimum price for a small residential flat HK$5.93 million.
ARE SALARIES KEEPING UP?
To a large extent, this rise in property prices is a positive trend that is reflective of the city’s astounding growth, seeing that Hong Kong is an international financial centre that attracts investments and capital flows.
But a closer look at salary data provides a disturbing revelation: That most university graduates have little hope of buying their own home.
The quantitative easing of monetary policy, higher demand from mainland Chinese and low interest all contributed to soaring residential flat prices.
The starting salary of university graduates has increased about two times from 2004 to 2014, rising from HK$7,500 to HK$14,311.
University graduates who join multi-national companies or conglomerates as management trainee have better prospects, earning around HK$30,000 a month, and see higher wage increments across their career compared to those working for small and medium-sized companies.
In fact, almost seven in 10 Hong Kong residents aged 24 to 35 with a degree earned monthly salaries under HK$30,000. The median monthly salary of this age group is HK$21,250.
This figure goes down to HK$15,000 when you compare across all in this age bracket irrespective of education levels. This tells us that although degree qualifications can make a difference, the difference is irrelevant when compared with soaring house prices.
OWNING A HOME OUT OF REACH
It is painfully obvious that buying a residential flat is out of reach for young Hong Kongers. In Hong Kong, loan restrictions dictate that a home buyer can only borrow 60 per cent of the house value as mortgage for a flat less than HK$7 million.
That means that for a HK$6 million flat, the loan is HK$3.6 million and the upfront payment HK$2.4 million. It is almost impossible to save this amount in 10 years, which requires setting aside HK$15,456 a month assuming an annual return of 5 per cent even if a young couple jointly take on this task.
These loan-to-value restrictions are relaxed if the home buyer purchases mortgage insurance, to 80 per cent of the house’s price. Even then, a potential buyer has to fork out HK$1.2 million as upfront payment, requiring a monthly saving of HK$7,727 for 10 years assuming an annual return of 5 per cent.
And this is just a small flat of 40sqm.
RENTING AS AN ALTERNATIVE
Renting a flat may be an alternative. From 2004 to 2018, rent for the same 40sqm rose by 177 per cent or 7.5 per cent annually.
A tenant needs to pay a monthly rent of HK$12,240 (New Territories or suburban) to HK$19,720 (Hong Kong Island or city centre). This may work for young people who may be earning higher salaries but is less accessible to the average Hong Kong youth.
Where owning a residential flat remains the wish of many Hong Kongers, renting also remains a poor alternative to a widely held aspiration.
In addition, unlike the Central Provident Fund in Singapore, Hong Kong’s compulsory saving scheme, the Mandatory Provident Fund, does not allow Hong Kong residents to save enough for retirement.
With a contribution of 5 per cent of one’s monthly salary each from the employer and employee, the maximum monthly contribution is also subject to a cap of HK$1,500.
After contributing for 35 years with an assumed 5 per cent annual return, the amount in one’s account will only reach HK$2 million.
Let’s also not forget that sinking one’s salary into rental is not a sustainable solution, because it leaves a person without a place to live in their old age.
Owing one’s own home also gives the home owner the option of funding their retirement expenses by selling their place subsequently for a quieter apartment further away from a city with a reverse mortgage scheme.
Home ownership, which gives people a sense of belonging and a stake in their economy, is a common, unfulfilled aspiration widely shared by many Hong Kong youths that authorities recognise to be a pressing issue.
For this reason, the government proposed in 2001 to build public youth hostels comprising single-room or double-room apartments for youths aged 18 to 30 to give Hong Kong youths who want to move to the city more options.
Rent ceilings will be set at 60 per cent of market prices of comparable apartments in the neighbourhood
While this proposal might have potential, it remains to be seen if it will arrest the deeply held dissatisfaction. Bureaucratic sluggishness and construction delays have led to the postponing of these plans, with the first only scheduled to be completed later this year. Only 80 places will be available then.
NOTHING TO LOSE
I have pointed out in commentaries on Hong Kong for many years, especially after the Occupy Central movement in 2014, that if young people can own their residential flats, they will be less likely to protest during the hot summer.
But today, less than half of all Hong Kong households own their own homes, a statistic that has stayed that way for more than a decade, according to the Hong Kong Census and Statistics Department.
Five years on, the same logic also applies to the current protests in Hong Kong. Young people in Hong Kong like air-conditioned environment. Ladies usually bring umbrellas to cover their skin from strong sunlight.
Yet many of them came out to protest despite the searing weather.
It is no wonder the average Hong Kong youth, facing little hope of having a place to call their own and start a family, will grab a black t-shirt, a mask and an umbrella and head out to the next protest.
They are angry, they face huge obstacles to achieving their dreams and they will encounter more serious challenges when they retire. They have little to lose.
Simon Lee is Programme Co-Director of the International Business and Chinese Enterprise Programme at the CUHK Business School and Senior Lecturer at the School of Accountancy at the Chinese University of Hong Kong.