Scarce land and resource substitutes in Hong Kong's economy

Scarce Land in Hong Kong

Land, capital, labour and entrepreneurship constitute the four factors of production. These are referred to as factors of production because people need them in their economic production ventures. Hong Kong, like many fast growing cities with vast population, is running short of land. In fact, it is already, a scarce resource. Problems such as insufficient housing are all due partly to the scarcity of land. Land is also required for public infrastructure and commercial structures. When land is scarce as it is in Hong Kong, it is the people who bear the brunt of high prices for housing. This is an indirect tax on land. Businesses face high costs of operation. It also becomes hard to put up critical infrastructure (So, 2014).

The land matter has been sensitive since the colonial days. Laurence Wong, the president and founder of Many Wells Property Agent Ltd. says as much. Wong is privileged to be an eye witness to the changes in land dynamics from the colonial time until when Hong Kong was handed over to the Chinese authorities. He observes that the land problem is here for a lot longer (Wong, 2014). The restrictions on supply of land courtesy of the topography and the regulations that govern it, Hong Kong now has the smallest ratio of land supply per capita among 10 comparable metropolises of Asia, America and Europe. Thus, the government has an urgent challenge on its hands to solve the land scarcity problem (Bertaud, 1997).

Causes of Land Scarcity

Land use restrictions and the topography including the steep hills, sea and island inlets are a stumbling block to resolving the problem. One may argue, though, that even though the latter aspects of land constraint are genuine, they also happen to be an attraction and make up a beautiful natural scene in Hong Kong. Regulation, were intended to ration land. This was justifiable given that Hong Kong was a city state in isolation with limited land without hinterland (Peng and Wheaton, 1994). Owing to the fact that the city state had to provide for its socio-cultural aspects of existence, vast pieces of land were reserved for recreational purposes, water catchment and agriculture in the city's boundaries. The reserves hampered development of the city within the radius space of the commuting distance of a metropolis. Apart from the topography constraints, the planners in Hong Kong have seriously rationed land supply within the city (Bertaud, 1997).

Effects of the Land Scarcity

The problem of land shortage has led to increased social issues that trigger political pressure. They prevent efforts to create a sustainable urban development and housing plan. Consequently, the prices of houses and the costs of urban development are soaring. For instance, Tai Koo Shing, a housing estate, has witnessed an increase in the process of large flats multiply 17 times over the past three decades. Similarly the prices in City One have risen fifteen-fold over the same period (Wong, 2014).

Hong Kong has used land reclamation for purposes of expansion. The authorities aimed at setting up 85,000 new flats every year when Tung Chee-hwa ruled. However, the administration failed to address the land shortage issue in a significant way - Pun Kwok Shing, He was a director of the planning department in the regime (Wong 2014). Leung Chun-ying, the chief executive, also failed to meet the 47,000 units target in 2014 (Hong Kong housing shortage: Leung Chun-ying plans to increase land supply, 2015).

Solution to the Land Scarcity Problem

There was a time when the society was not sensitive to environmental issues. Then, it was possible to reclaim land from the sea. Indeed, large coastal areas of Victoria harbour came from reclaimed land. There is no dispute to the fact that we need land for development. It is still hard to find a way to acquire such land though. The political environment has made it all the more harder. There are many people opposed to all manner of development. Thus, it is hard for the authorities to locate sufficient land and earmark it for development (So 2014).

The planners in Hong Kong have responded to the severe land restrictions by allowing very high densities; courtesy of the very high floor ratio. Indeed, this deliberate high residential density is a first experiment for the world. Honk Kong, has indeed, shown that high density housing in well planned and designed estates, with sufficient amenities and infrastructure, can also yield admirable economic gains devoid of any drawbacks. Contrary to what the pessimists of such an arrangement would predict, the high density set ups provide the locals with a wide range of job options and also makes it easy for enterprises to access and choose from a large pool of labour options. Indeed, if the densities did not exist, Hong Kong would not be an economically robust city as it is now (Bertaud 1997).

Alternative Solution

The combination of high densities and stiff supply of land as shown above may make the prices of land soar further in the future. It may become the land bubble speculation just like the one that affected Korea and Japan. Thus, the authorities and planners have no option but to expand land supply options in Hong Kong. It is now becoming more urgent to develop the area that is considered suitable for building within Hong Kong Special Administrative region (HKSAR) (Bertaud 1997).

Land reclamation programs such as the redevelopment of Kai Tak Airport will supplement land supply in areas where it is needed most; and with a 10 km radius of the CBD. Reviewing the floor area restriction around Kai Tak Airport will also give room to expanded development and a higher density that was the case earlier. Consequently, the supply of land will increase. The added projections will not change the ratio of land scarcity to a significant extent compared to the cities cited above in this paper though. In order to maintain a reasonable response to an increase in demand of land, more land should be released from the boundaries of HKSAR so as to reduce fragmentation of the area that has been built up (Bertaud 1997).

The areas that do not have special historical or environmental values should be made available for development purposes. These should incorporate land on steep gradients; as Hong Kong has demonstrated to have capacity to develop such land. Other areas are highly vulnerable to negative environmental effects while other presents a high potential for recreation. Such areas should be placed under protection by the authorities but allowed access to the recreational value they present (Bertaud 1997).

Conclusion

Hong Kong is a pioneer in the high density urban residential and commercial set ups. The planners have perfected the practice. However, Hong Kong could fall prey to its own successful programs if the supply of land is seen as a dead end (Bertaud 1997).

Land reclamation programs coupled with the ability of the planners to set up structures on steep gradients has reduced the severe constraints presented by topography challenges. The Isolated city state restrictions have become obsolete. Honk Kong should now allow development to occur on the buildable areas within SAR and around it. Of, course; there will be need for fresh investment in infrastructure. Analysis of the costs and benefits should provide guidelines on the possible sources of such resources and their limits (Bertaud 1997).

In the absence of such an expansion of the land market, the perception that land supply is fixed in such a robust and dynamic economy could trigger a speculative land bubble that could in turn damage the economy of Hong Kong in the future and negatively affect the s

List of references

Bertaud, A., 1997. Measuring Constraints on Land Supply: The Case of Hong Kong. World Bank, Processed.

Hong Kong housing shortage: Leung Chun-ying plans to increase land supply (2015) Available at: http://www.globalpropertyguide.com/news-Hong_Kong_housing_shortage_Leung_Chun_ying_plans_to_increase_land_supply-2175 (Accessed: 17 September 2016).

Peng, R. and Wheaton, W.C., 1994. Effects of restrictive land supply on housing in Hong Kong: an econometric analysis. Journal of housing research, 5(2), p.263.

So, R. (2014) Land and labor shortage causing major problems. Available at: http://www.chinadaily.com.cn/hkedition/2014-03/13/content_17343185.htm (Accessed: 17 September 2016).

Wong, V. (2014) Land shortage impeding HK development plan. Available at: http://www.ejinsight.com/20140916-land-shortage-impeding-hk-development-plan/ (Accessed: 17 September 2016).