What do we know about housing supply? The case of Hong Kong SAR

Abstract

The house price in the Hong Kong SAR of China is well-known to be ‘unaffordable’. This paper relates the macroeconomy with the housing market of Hong Kong and argues that the housing supply plays a vital role in explaining the phenomenon. This paper also shows that there are some practical challenges in understanding the housing supply of Hong Kong, including the potentially complicated ownership structure of real estate development. While the discussion centres on the situation of Hong Kong, its lesson may also apply to housing markets in other small open economies.

Keywords:

• New housing supply
• oligopolistic market structure
• ownership structure
• real estate development
• real estate developers

Notes

Acknowledgements

The authors are grateful to Nan-Kuang Chen, Terence Tai Leung Chong, Qing He, Fred Kwan, Tommy Leung, Shane Su, Byron Tsang, Matthew Yiu, and the anonymous referee for helpful discussion. The authors also express their gratitude to City University of Hong Kong and Hong Kong Shue Yan University for their financial support. Part of the research was conducted when Charles Ka Yui Leung visited the Hoover Institution, whose hospitality is gratefully acknowledged. Moreover, part of the work described in this paper is supported by the Research Grants Council of the Hong Kong Special Administrative Region, China (Project No.: UGC/FDS15/B01/18). The usual disclaimer applies.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 In this paper, we focus on the empirical research on housing market. There are theoretical attempts to understand the housing supply, but it is beyond the scope of this paper to review that literature. Among others, see Wang and Zhou (2006) and the reference therein.

2 See also Huang, Ka, Leung, and Qu (2015) and Wu, Gyourko, and Deng (2012, 2016) for more discussion on the city-level Chinese housing markets.

3 For general discussion of aggregation bias, see Hanushek, Rivkin, and Taylor (1996), among others.

4 The Census and Statistics Department of the Hong Kong SAR Government at https://www.censtatd.gov.hk/home/.

5 For more details, please refer to https://www.devb.gov.hk/filemanager/en/content_69/press20080222_appendix2.pdf.

6 The press release can be found at https://www.info.gov.hk/gia/general/201302/28/P201302280598.htm.

7 The full report can be downloaded at https://www.landforhongkong.hk/pdf/Report%20(Eng).pdf.

8 For more discussion, see Tirole (1988), among others.

9 The contestable market theory can be traced back to Baumol, Panzar, and Willig (1982). It quickly becomes very controversial, both theoretically and empirically. Among others, see Baumol and Willig (1986), Brander and Zhang (1990), Martin (1989), Morrison and Winston (1987), Spence (1983), and the reference therein. This paper has no intention to take a side in this debate. It merely mentions such a theoretical possibility.

10 The market capitalisation of each listed developer has been suggested to us as an alternative measure. In the context of Hong Kong, it may not be a desirable empirical strategy. We will return to this point later.

11 Formally, HI $={\sum }_{i=1}^n{\left(s_i\right)}^2$, where $s_i$ is the market share of the $i^{th}$ developer. Since $0\le s_i\le 1,$ it can be proved that $0\le HI\le 1.$

12 Most studies date the GFC with the collapse of the Lehman Brothers. However, some studies demonstrate empirically that the US housing market started the downturn in 2016. See Chang et al. (2015, Appendix I), among others, for a review of the literature.

13 It is a difficult job to formally establish the degree of competition in a market without a structural model (see Brander and Zhang [1990] for more discussion).

14 Throughout the paper, the ‘daughter company’ will be used interchangeably with the ‘subsidiary’.

15 See Williamson (1975, 1996), among others.