(This essay was published in Hong Kong Economic Journal on 11 January 2017.)
In October 2013, a month after the Government’s Long Term Housing Strategy (LTHS) consultation document was released, I came to the conclusion that it had significantly underestimated future housing demand growth (See Hong Kong Economic Journal, 30 October 2013). Ever since then residential housing prices have continued to rise rapidly in spite of the imposition of hefty punitive stamp duties. This is strong evidence that my conclusion was correct.
The finalized government document had announced a 10-year target to build 480,000 new homes between 2015/16 and 2024/25, 60% in the public sector and 40% in the private sector.
The target of building 48,000 units a year was arrived at on the basis of a projection that first estimated a future annual increase of 29,400 units coming from newly formed households each year. To this is added another 18,600 new units to make up for a shortfall due to the demolition of old units, and to meet the needs of inadequately housed households, satisfying demand from external sources, and so on.
What is Wrong with the Projections?
What is driving the increase in the demand for housing in Hong Kong?
First, the percentage of single person households rose from 14.8% in 1991, 14.9% in 1996 to 15.6% in 2001, 16.5% in 2006, 17.1% in 2011, and 17.7% in 2016. The increase in the numbers of single person households over were 42,983 in 1991-96, 44,205 in 1996-2001, 46,542 in 2001-06, 36,435 in 2006-11, and 36,712 in 2011-16. This means about 7,000-8,000 new households were added each year (Figure 1).
Second, the rapid acceleration of divorce and marriage rates. In 1991, there were 6,300 divorces; the numbers increased to 9,500 in 1996, 13,400 in 2001, 17,400 in 2006, 19,600 in 2011, and 20,100 in 2015. In 2014, there were about 20,000marriages, 37,200 first marriages, and 19,200 remarriages in Hong Kong; and an additional 5,000 marriages registered on the Mainland (Figure 2).
In 2014, first marriages and remarriages registered in Hong Kong alone would increase new households by more than 56,500. Combining this with the new supply of single person households would yield at least an annual net increase in excess of 60,000 new households each year, which is twice as large as the 29,400 per year figure projected in the Government’s LTHS.
Rising Divorce and Remarriage Rates and Housing Policy
We know in Hong Kong, as well as elsewhere, that divorce rates are higher among lower income households. In 2011, about 51% of all divorced individuals (among households below 65 years of age) are found in the bottom quartile of the household income distribution; of which two-thirds live in public rental housing estates.
Remarriage rates have also increased significantly over time. Remarriage opportunities are much better for men than they are for women, which mean a growing proportion of divorced men are remarried, while women remain divorced. In 1991, within the whole population there were 21,140 divorced men and 28,540 divorced women, but by 2011 they are 91,540 divorced men and 175,940 divorced women.
The numbers of divorced women living in public rental housing have increased rapidly compared to divorced men. In 1991, there were 8,260 divorced men and 9,220 divorced women living in public rental housing. By 2011 the figures had risen to 41,080 divorced men and 78,360 divorced women.
It is likely that most divorced women remain as public rental housing tenants, especially those with children, while divorced men move out. Many of these low income divorced men that move out of the public rental housing units take up a significant proportion of the new tenants in the sub-divided housing units. Some may remarry and subsequently apply for public rental housing again. This too contributed to the rise in applications on the waiting list for public rental housing units in recent years.
The current public rental housing allocation criteria favors married couples, but does not discriminate between first marriages or remarriages. Implicit in such an allocation criteria is a perverse incentive that subsidizes divorces. It also penalizes children who inevitably suffer from broken families. The growing numbers of divorced women living in public rental housing units leads to a rising number of children growing up in broken single-parent families in public rental housing estates. This sets the stage for creating a new underclass that perpetuates intergenerational inequality.
As divorce and remarriage become increasingly prevalent in Hong Kong, the aims and consequences of our long-term housing strategies need a fundamental re-thinking. Is our present housing policy creating an economic underclass and making divorce too convenient?
Rising property prices and rents reflect a tight housing market. But the rapid growth of sub-divided housing units and in applications on the waiting list for public rental housing units show there is a reinforcing effect between housing demand growth and our public housing policy. The growing incidence of divorce and remarriage among low-income households is partly policy induced.
The implication is that a sound long-term housing strategy should not focus only on how many housing units to build. It must also consider the kind of society we will be encouraging through our public housing policies. Are we encouraging divorce and remarriage? Will the rising incidence of low-income single parent families create an economic underclass in the public rental housing estates? Are we reducing upward social mobility and worsening intergenerational inequality with our public housing policies?
Errors in forecasting housing demand that fail to take into account divorce and remarriage can be easily corrected. Errors in housing policy will haunt many generations to come.
The central problem identified and emphasized in this article is that the concept of what is a household has been rapidly changing in Hong Kong. This is the primary driver of rapidly rising housing demand among low-income households; and will continue to do so in the future. It will be foolhardy to try to tackle the housing problem simply by trying to narrow the demand and supply gap by building public rental housing. Such a strategy will not only have a difficult in finding appropriate land, but will worsen the problem by fuelling further demand.
Moreover, building more public rental housing will concentrate more low-income households into these housing estates and will only add to the growing economic divide between those who own property (the “haves”) and those who don’t (the “have-nots”).
It is time for long-term housing strategy to change course in the next five years.