Hong Kong protests: Why Carrie Lam blames the housing market | FT

Hong Kong protests: Why Carrie Lam blames the housing market | FT


Protesters in Hong Kong are
demanding political reform but chief executive Carrie
Lam’s strategy to placate them is to focus on economic issues. The argument she and
Beijing have championed is that the unrest is due to a
lack of economic opportunity. And a big part of that
is due to Hong Kong having the least affordable
property market in the world. By one estimate the
median price of a flat is 21 times median salary. In London, it’s less than five. So last week, Lam announced that
Hong Kongers would be allowed to take up mortgages of up to 90
per cent on a flat valued at up to US$1m. That is a complete reversal
of 10 years worth of failed attempts to cool the market by
restricting mortgage lending. She also pledged to seize
700 hectares of land from developers to help
ease the housing shortage. However, the main
beneficiaries of both measures will be the one group of
people in Hong Kong who really don’t need any help
at all – property tycoons. On the face of it, easing
mortgage restrictions should mean people are no
longer priced out of the market. The reality is that Hong
Kong property prices only 5 per cent off their
all-time high. And accessibility isn’t
necessarily affordability. Telling homebuyers
they can leverage up with prices near record
highs and the economy facing recession is a great way to
put people at risk in falling into negative equity. But what about land seizures? Won’t that hurt the developers? Well, probably not. In Hong Kong, just
four developers own farm land, covering
150m potential square feet of floor space – six
times the size of Monaco. What’s more, the
government will have to pay market prices
for the land it seizes. But the kicker is that
the government already controls the amount
of land released for development each year. The way Hong Kong’s political
system is structured is that the tycoons who control
developers have outsize representation on the
1,200-person committee that chooses Hong Kong’s
chief executive. So Lam’s government
is incentivised to respond to their wishes, not
those of ordinary people, when it comes to how much land is
made available for new housing. And that means developers
have little interest in any democratic
reforms that can loosen their grip on Hong Kong’s
lucrative property market.