(This essay was published in Hong Kong Economic Journal on 27 June 2018.)
The Task Force on Land Supply published its much-awaited report in April, and is now gathering public views on a menu list of land supply options. The report was disappointing on three counts.
First, it did not outline a development strategy for Hong Kong’s future development. The report appeared to be merely contented with citing a projected shortfall of 1,200 hectares of land based on the Hong Kong 2030+ planning study. After discussing why the said shortfall is very likely underestimated in the areas of housing land, economic land, government-institution-community land, open space and transport and infrastructure facilities, it provided little enlightenment on the way forward.
A development strategy cannot emerge out of a list of land supply options. There should be aims and goals, if not specific objectives. There should be a discussion of tradeoffs among various goals in achieving the aims of development.
Second, although reference was made to the “tiny” and “cramped” living conditions in domestic premises, it offered nothing in terms of improving the per capita living space in the construction of future units as a development goal.
If an extra 1,200 hectares of land will bring no improvement to our living conditions (not to mention that the provision might not even be adequate), then why doesn’t the government recommend finding more hectares? Are we to infer from this silence or omission that the government is implicitly contented to let space become still more “pricy” in the future and that improving our accommodation standard is not one of our development aims?
Third, the report identifies twelve land supply options other than regular ongoing activities, but says nothing about ameliorating the factors that delay development.
Developing land takes time because there are many procedures that have to be followed. There can also be long delays because decisions are contestable and contested. Prioritizing different land supply options must take into account not only the economic costs and engineering difficulties, but also the time delays caused by the regulatory approval process. It is disturbing that the report is silent about such tradeoffs. Given the huge shortfall of land supply, we expected government to be innovative in finding ways to speed up the regulatory approval processes so that more land could be made ready sooner.
Public engagement is a necessary process in an open society, but what can we expect from it in the absence of an articulated development strategy or choice of strategies? If the views expressed in the public domain are unabashedly partisan voices, then the public engagement exercise becomes a test of political wills, about winners and losers being decided by the pitch and volume of the voices coming through megaphones. Is this going to decide the common good on an issue of such paramount importance to the future of Hong Kong?
The severe shortage of land is affecting the cost of not only residential space but economic space. While there are cases where landlords are selling commercial buildings in Central at $40,000 and $50,000 per square feet, then we know with little doubt that there is an acute shortage not only of residential space, but also of economic space.
The Belt-and-Road and Big-Bay-Area initiatives are not merely opportunities for our workers and businesses to move beyond Hong Kong, but also opportunities to attract businesses to Hong Kong. Finding land for development is central to the long-term economic future of our city and to whether our prosperity will be lop-sided for the few or broadly-based for all.
Demand-side considerations imply that we must consider not only how much land should be supplied, but also some of the more appropriate locations to meet both residential and economic development needs. The critical considerations must include:
Develop future economic activities in locations with convenient access to the core urban areas, so as to capture the synergistic benefits that arise from the economies of agglomeration.
Currently, economic activities are concentrated in Hong Kong Island and Kowloon, which are mostly fully developed making it a slow and difficult process to add more land through urban renewal or revitalization. Likewise, the existing transportation system cannot cope with adding many more commuters. Yet locating economic activities away from the urban core would be inefficient and weaken the potential for development and growth.
This conundrum could be addressed by reclaiming land for future economic activities. Developing a sizable island to the east of Lantau Island, with new connecting transportation infrastructure, would make a great deal of economic and engineering sense and should be actively pursued. The government should move immediately from the conceptual stage to planning and engineering feasibility studies. Such a new site would provide opportunities for co-locating domestic residences with economic activities within close proximity of the core urban areas, without overburdening the existing transportation and commuting corridors.
The East Lantau reclamation site would also provide an opportunity to develop a centrally-located and well-connected center that could link up the core urban areas and beyond, providing an alternative transport link to Lantau Island and the wider Big Bay Area.
Another option for new land would be to convert suitable agricultural land held by developers and indigenous landlords for housing development (some of which is now used as brownfield sites), so as to tap into this considerable land reserve (at least 1000 hectares). Whether this should be done through a public-private partnership versus land resumption will be considered below.
The current economic activities on brownfield sites need to be relocated. The activities range from logistics and container storage to recycling industries and vehicle repair and workshops. A logical solution for such activities would be to redevelop the River Trade Terminal site and its surroundings, which are in a primarily compatible-use industrial area.
This will take time and will be costly, but there are few alternatives that could trigger the conversion and release of many tracts of agricultural land. It is imperative that this initiative be actively pursued as part of a development strategy to transform all of the New Territories so they become better integrated into Hong Kong’s development. Appropriate arrangements to compensate and resettle the existing tenants on the brownfield sites and in the River Trade Terminal site will also be necessary.
The public is concerned about whether there will be fair compensation for developers in a public-private partnership. Transparency and a rule-based approach are always desirable. But anyone who has handled land knows that land is a highly heterogeneous commodity and each plot can differ from the next. There are also various ways to combine different plots into a bundled tract of land. It is not easy to apply a fairness principle under such circumstances either substantively or procedurally. That is why it takes more time to reach a consensus when there is a greater concern about fairness, and less willingness to trade off with speediness. And yet, fairness is not without social cost.
In the case of public resumption of land, while it is often assumed this will lead to faster development, it is not necessarily the case.
Public resumption of large tracts of contiguous land sometimes encounters unanticipated difficulties because of initial fragmented ownership – a common phenomenon in the New Territories. If subsequent development deploys some of the plots of the resumed land for private development, then it may be construed as a violation of the act of resumption for public purpose. This could be legally challenged.
The alternative is public resumption of only small tracts of land to develop public housing. But this could lead to less efficient land use, making it more difficult to coordinate overall development. It may result in even longer delays, for example, if infrastructure near the site is inadequate and cannot be quickly provided. Thus, a speedy process of public resumption does not always lead to speedy development.
If there exist occupants and tenants on the land, they have to be compensated and resettled before development can start regardless of whether land is converted through public private partnerships or public resumption. Interestingly, in public resumption the government has to deal with the occupants and tenants directly and the landlord has no incentive to assist with the process. In public-private partnerships, the landlord has a stake and is motivated to facilitate the compensation and resettlement process.
Given all these factors, it is important to keep an open mind as to how each tract of land is tackled from a policy approach. If it is more apparent that a public private partnership could speed up development, then it should be adopted. If public resumption would be more effective, then it should not be forsaken. Whichever approach could result in a faster process in securing land conversion should be the preferred choice. One should not be overly ideological or political in such matters, especially when there is grave concern about the shortage of land supply.
Finally, a negotiated outcome is always desirable because it upholds the principle of fair compensation for owners of private property – a right recognized by the Basic Law. The right of ownership cannot be restricted to a claim on the value of land in its current designated use, but must also include a reasonable claim on its future value as long as this does not harm the public interest. Our courts have demonstrated it accepts such a principle.
The government should articulate a vision of future development that meets public expectations for a better living environment and a more prosperous economy. Land supply should focus on reclamation to the east of Lantau Island to support Hong Kong’s residential and economic needs, which would be consistent with a larger role in the Belt-and-Road and Big Bay Area initiatives.
Re-envisioning a more holistic development of the New Territories would complement the larger role Hong Kong will play. The conversion of agricultural land must be central to this development. The practical approach would be to speed up those land conversions that are consistent with overall development aims and not to be hamstrung by political and ideological distractions. Far too much is at stake now to be distracted from the task at hand.