Mei Tung Estate – Photograph by Can Pac Swire via Creative Commons
Hong Kong’s shortage of affordable housing is becoming an increasingly pressing issue – over 30% of the population is currently living in subsidized housing, and the number of people waiting to enroll in the public housing program is growing each day. Because the Government program is so competitive, many residents are forced to live in divided units, cage homes, or rooftop settlements. Increasing rent pressure, inflation, and undesirable living conditions make homelessness the only option for many.
Hong Kong is a rich city, but wealth is extremely unevenly distributed. According to a study on 28 Asia-Pacific cities, Hong Kong ranked the lowest on its Gini Index – a measurement of income distribution. While the rich enjoy luxury condos with elevated swimming pools, the poor, which makes up about 20% of the population (a total of ~1.4 million people), struggle with ever-increasing housing prices.
“One in three of Hong Kong’s population, over 2 million people, rely on subsidized housing. Waiting time is on average 4 years. Almost half of the population in poverty are working poor.” These are just some of the alarming statistics published by Hong Kong Housing Authority. Although the Housing Authority operates 740,000 flats in 172 Public Rental Housing (PRH) estates, the high demand for affordable housing is not close to being met. As of December 2015, there are nearly 300,000 applicants waiting for an affordable place to live in, and the number is only going up.
As a result, people who cannot wait are forced out onto the streets.
Although homelessness is commonly associated with unemployment, there is a large group of people are in the labor force also suffer from the effects of poverty. In Hong Kong, this “working poor” group accounts for more than half of the population in poverty. In numbers, that is about 700,000 people from working families who cannot provide themselves with basic living needs.
The picture is clear: Hong Kong is expensive, and housing is a huge expense for most people. Price-To-Income (a basic measurement for housing affordability) in Hong Kong is almost double that of New York City (35.8 in HK; 19.5 in NYC). What can low-income residents do? Some have the patience to wait in extremely inhumane living arrangements until the day a public housing spot opens up: some build shelters on others’ roofs, and some spend their nights at McDonald’s as McRefugees. Most of them live “creatively” day-to-day, because they have no other choice.
How can Hong Kong provide sufficient housing for everyone?
Although the Housing Authority promises to build more subsidized housing, the current lack of supply calls for swifter action.
The problem boils down to supply vs. demand in the number of affordable units. There is simply not enough supply of affordable housing in Hong Kong. When housing is scarce, it becomes unaffordable. Market-rate developers have the upper hand in this game. If the market allows them to build high-end housing and charge the highest rent they can get, they will.
With this in mind, government should look at ways to engage these private developers in delivering affordable and mixed-income units. Given the lucrative high-end real estate market, this might seem like an empty promise. However, effective incentives for mixed-income units will work, and it is proven to be cheaper and faster than relying on public estates to be built by the government. For example, the Low Income Housing Tax Credit (LIHTC) in the U.S. has accounted for 90% of the country’s affordable housing by incentivizing private investors/developers to build low income units.
In addition to providing incentives for low-income housing, encouraging the revitalization of underutilized properties in the city could also help increase land use efficiency, which will eventually drive down housing prices.
There are many vacant industrial buildings in Hong Kong. However, the opportunities to re-purpose these spaces are limited due to zoning restrictions. Most of these parcels are zoned as Unspecified Use Area, which is ironically the government’s scheme to make land-use more flexible. In reality, such a flexibility clause does not make conversion of underutilized properties easy. In fact the complex application procedures and high waiver fees associated with building use conversion make it more appealing for landowners to demolish the old buildings and build anew on these parcels.
As a result, most developers choose to build premium estates to target the more profitable markets. If these rules are relaxed and processes reduced, more underutilized properties could be re-furbished and re-purposed to add to the supply of affordable living spaces.
Instead of solely counting on the Housing Authority to realize affordable housing construction in its the pipeline, we could leverage other approaches to relieve Hong Kong’s housing pressure. While the under-served get creative with their living arrangements, the government should also get creative in solving this housing crisis in a timely manner.
Existing & Proposed MTR Stations, map by Wikimedia
Wong Chuk Hang, one of the most hip “undiscovered” neighborhoods in Hong Kong, is undergoing massive redevelopment thanks to a planned MTR Station. Just as galleries, artist studios, hidden coffee shops, and restaurants started emerging in recent years, the community is now facing rising rents and redevelopment pressures. Will WCH become another transient alternative neighborhood that will soon be overtaken by big developers?
Historically, WCH was zoned strictly for industrial activities. As industrial activities began to die in the early 1970s, many old warehouses were left vacant. Over the past decade, small businesses, especially from the creative community, relocated to Wong Chuk Hang as rents soared in central Hong Kong locations. Slowly, Wong Chuk Hang has become a hybrid neighborhood that houses activities ranging from food processing to artist studios and rock-climbing gyms.
Recent redevelopment in this neighborhood has induced a twofold increase in rent. New ground-up developments coming to the neighborhood are a response to the shortage of office space in Hong Kong and the high rent potential in WCH.
The Factory, 1 Yip Fat Street, Wong Chuk Hang, photo by Ziyou Tian
Is the new development pushing out the emerging creative community and small businesses in WCH? Not entirely, but it most likely will eventually.
Co-ownership is a common practice in Hong Kong, and many of the industrial buildings are occupied by owners rather than renters. The first round of redevelopment targeted single ownership buildings, which were mostly left in bad condition and were barely occupied.
In multi-tenant ownership situations, it is much harder to reach an agreement to sell the building for redevelopment. Currently in WCH, a new office building charges on average 20HKD/sq ft whereas the old building could only generate around 9 HKD/sq ft. No matter how much individual owners want to preserve the original community, the rent gap is becoming too appealing for anyone to refuse to negotiate.
This new development will seriously challenge WCH’s buzzing scene and its vision of becoming the new destination for modern art in Hong Kong. Often, artists are both blamed as gentrifiers and sympathized with as the victims of gentrification. However, in Wong Chuk Hang, this is not the case: the uplift of the neighborhood is mostly transit-driven and the existing settlements will not be forced to relocate, especially if they owned the properties.
Inevitably, the creative community will suffer from the lack of room for growth. Currently, art lovers and culture seekers enjoy getting out of their industrial lifts and discovering the hidden art scenes in WCH. As old industrial buildings are replaced by shinier, trendier, and more well-maintained office towers, affordable and flexible space will be less available for the grassroots alternative community to grow.
“Life will get easier, but Wong Chuk Hang will become another boring neighborhood at the same time”, says the head of the South Island Cultural District and the owner of Art Statements, Dominique Perregaux.
If the rent is already doomed to be too damn high, would the public space improve as part of the neighborhood redevelopment?
New buildings in WCH are shiny and well-maintained by building management companies. However, little has been done outside the boundaries of these new building. Although the MTR station and the new offices that come with it will increase foot-traffic, streets and connectors still remain at a monstrous industrial scale. Crossing streets requires endless detours under the elevated highway. Public space is almost non-existent, and is only hidden under shabby overpasses. While private developers polish their own properties, other desired features of a neighborhood do not seem to make their appearance simultaneously. If the rising rent is not to be controlled, at least government should demand developers to contribute to the public space.
What is the future for WCH? How much longer can this neighborhood remain a cool, hip gem?
As displacement is not so much of an immediate threat to owner-occupied spaces, the existing community may not be forced to relocate in the near term. However, new space available for rent would target a very homogenous group of users — office occupiers who could afford paying high rent. The development-driven transformation in this neighborhood poses a question as to how to sustain or further foster a diverse mix of activities. We need to ask these questions or Wong Chuk Hang, the “hidden gem” of Hong Kong, will soon just become another uninspiring office compound.
Photo by Thomas Depenbusch / Photo edited by Author via CC BY
China is known for having a strong central government. In many ways, this perception is very true. Unlike countries like the United States which clearly delineate federal and local (state) powers, all governmental authority in China flows from the central government. Over the past several decades, however, the central government has gradually delegated power down to local governments. Local governments now have significant decision-making authority when developing policies.
Though decentralization has spurred economic growth, it has also brought challenges. In particular, there has been a rise in local protectionism, with local government officials focusing on growth in their own municipalities at the expense of surrounding areas.
The Chinese government increasingly needs to balance the priorities of central and local governments. Furthermore, many problems, including environmental protection, are just handled better on a regional rather than city level. As such, there has been significant growth in the rise of regional plans over the past decade.
Benefits of Regional Plans
When developing regional plans, policymakers look at existing and projected resources within a region (including people, natural resources, infrastructure, and industries) and analyze the opportunities and challenges that will shape the region’s growth in the future. Both regional and local leaders use this information to develop policies that limit redundancies, encourage cooperation, and maximize the potential of regions. Regional governments can both help create these regional plans by bringing nearby city officials together and can, in theory, help implement these plans.
Regional planning can prevent a “race to the bottom.” For example, if one city implements environmental protection measures that increases the cost of development, neighboring cities may view this as an opportunity to attract developers with their lower environmental standards and costs. This can lead to a chilling effect for the implementation of environmental protection policies. Strong regional governance can limit this effect by ensuring that nearby cities implement similar policies and play by the same environmental rules.
Regional governments can handle problems at scales beyond the city level. If a major city like Beijing forces factories within its city limits to close because the factories produce too much air pollution, these factories don’t necessarily shut down forever. They may move to nearby cities with more lax air pollution policies. In cases like this, the net pollution produced in an area will not decrease; it moves to other areas. By tackling problems at the regional level, the Chinese government can make meaningful strides towards addressing larger goals.
Regional economic planning encourages the clustering of talent in ways that build the greatest economic good for an entire region rather than one area. When industrial clusters grow in a city, the cost of growth for companies decreases as the supply of trained workers and the infrastructure necessary for that industry to thrive increases. This theory has been used to explain the development of Silicon Valley and other major innovation hubs. By developing distinct roles for cities within a region and decreasing intra-regional competition for industries, Chinese regions can develop these specialized regions necessary to compete in the global marketplace.
Challenges to Regional Integration
There is growing evidence which indicates Chinese leadership understands the importance of regional governance. President Xi is a strong supporter of the Jing-Jin-Ji regional area (Beijing, Tianjin, and the surrounding Hebei region). Regional authorities in the Pearl River Delta and Yangtze River Delta also show that Chinese leaders are thinking regionally.
Though regional plans and regional governments are popping up across China, the authority of these organizations is still unclear. There is little evidence to suggest that these regional plans and regional governments possess the carrots and the sticks necessary to work effectively.
Regional plans are designed so that everyone in a region is better off for participating; however, these plans often require concessions from local governments. A city may benefit from improved air quality and interconnected transportation due to region-wide planning and policies; this same city may also be required to limit its recruitment of desirable industries so that other cities within the same region can develop economies of agglomeration. For many local governments, the incentives (i.e. carrots) for participating in these regional plans just aren’t great enough. Local officials may balk at policies that limit their cities’ growth potential despite the potential environmental and quality-of-life benefits of regional planning.
Perhaps more importantly, regional governments have few methods to punish cities and leaders who are unwilling to follow regional plans. If city officials refuse to follow regional plans, regional plans and the benefits that come with them will quickly fall apart. Without the tools necessary to keep cities in line, even the best regional plans will have very limited success.
Urbanization in China has brought about massive challenges that leaders across all levels of government will have to work together to resolve. Regional governments can play an important role in balancing conflicting goals between local governments. However, China will have to take major steps to empower these regional governments.
First, China needs to formally include regional governments in its governmental structure. Second, it must provide these regional governments with the authority to keep cities participating in regional plans.
Though the decentralization from central to local governments has spurred economic growth, cities aren’t capable of tackling large issues like environmental protection on their own. With the emergence of regional plans across China, the Chinese government has shown that it recognizes the importance of solving problems on a regional level. It remains an open question whether these regional governments possess the carrots and sticks necessary to implement these regional plans.
While Chinese cities are growing at an unprecedented pace, much of this growth isn’t what most city planners would consider “smart” — that is, growth that is efficient, equitable, and environmentally sustainable. Instead, most Chinese cities are experiencing high levels of sprawl. This has led both Chinese and international pundits to focus on the issue of Chinese sprawl, with some even asking why Chinese cities haven’t learned lessons from American cities. Is sprawl a sign that Chinese leaders don’t know what they’re doing?
In theory, sprawl can be limited by good planning. In practice, sprawl is an exceedingly challenging phenomenon to stop. Though there are numerous complex reasons for the growth of Chinese sprawl, there are three systemic factors driving Chinese cities’ expansive growth: unprecedented Chinese growth, local government budget dependence on land sales, and the importance of GDP growth in the Chinese political promotion system.
Unprecedented Chinese Growth
In a way, building cities is a lot like playing a game of Tetris — waves of incoming population and development fall like Tetris blocks. In theory, a player wants to pack in the shapes as tightly as possible, limiting gaps and completing as many full lines as possible. And that’s the strategy most players use at the beginning of a Tetris game when the pace is slow.
As the pace of the game increases, perfectly combining these blocks becomes a lot harder. The need to place blocks smartly is superseded by the need to respond quickly; players begin to haphazardly drop blocks to avoid disaster and keep playing as the pace of the game increases.
If you watch someone playing Tetris and they’re almost out of room to stack new blocks, it doesn’t necessarily mean the player didn’t have a strategy; it just means that they didn’t have time to respond, or didn’t correctly anticipate which pieces would actually appear.
City planners in major Chinese cities are playing a high-speed game of planning Tetris. They’re trying to place the metaphorical pieces as quickly and logically as possible. Like a Tetris player, they don’t always know which pieces will come next.
In a vacuum, some moves may look peculiar, but Chinese planners and local officials are often doing their best to keep “the game” going. In a game of Tetris, this means stacking blocks higher and less efficiently than you’d like; in Chinese cities, this means pushing development further away from the center of the city.
As of now, there isn’t an equivalent to a maximum number of rows in Tetris, so it makes sense to keep building Chinese cities outward. In this way, Chinese sprawl isn’t “dumb” growth; it is perhaps just “as smart as growth conditions will allow.”
Chinese Cities Depend on Growth
Cities throughout the world derive financial benefits from growth; however, tax structures benefit each place in different ways. One underrated but exceedingly important factor in the growth in Chinese cities is their land tax structure.
In many places (including the United States), cities have financial incentives for smart, compact development, particularly for property taxes. The higher quality of development, the higher the assessed value of the land that it sits on, and the higher level of property tax that a municipality collects from the property owner. These taxes are collected on an ongoing basis, giving municipalities strong incentives to provide quality services to these areas to keep them from losing value (and thus decreasing property tax collections).
Unlike places like the U.S., the Chinese government owns all land within its borders; to raise money, local Chinese governments divide up parcels of land and sell development rights to developers and investors. There is no post-development property tax. Therefore, Chinese cities receive a majority of their financial gain from growth at the beginning of the development process.
The money received from selling these development rights often make up close to 30% of a city’s income, so city officials face a tough decision: do they encourage smart, compact growth that limits the amount of land they sell, or do they chase short-term cash infusions by selling development rights to land further from the city center? Even if you’re a huge proponent of environmental protection, it is easy to understand why this is a hard choice for local officials.
The Chinese land tax structure also creates perverse incentives to investors to build in unnecessary places. In places with high property taxes, investors are discouraged from holding property for a long time, as they are required to continually pay taxes on this property. Over numerous years, tax payments add up and cut into overall profit when these developments are sold. In China, however, investors (particularly those with low financing costs) can sit back and (theoretically) wait for demand to pick back up again. While investors wait, buildings with unsold space sit empty; some pundits have speculated that this has fueled the growth of Chinese ghost cities.
The structure of the Chinese political system also encourages unchecked growth that results in sprawl. This is because the Chinese political system works a lot like the farm system in Major League Baseball, with most officials beginning at lower levels (county & city) and moving to higher levels (provincial and central). Officials with strong track records (and strong guanxi) have the best chance to rise within the party to higher levels of government with greater amounts of power.
Though there are numerous ways to measure success for Chinese officials, traditionally the most important has been economic growth. Infrastructure investment and real estate development are major components of local GDP growth. Furthermore, spending on environmental improvements over transportation infrastructure has been found to have negative effects on promotion odds.
Encouraging smart, compact growth becomes a risky decision. If smart growth policies slow cities’ growth, they not only endanger municipal budgets but also jeopardize political careers. In this light, Chinese sprawl isn’t the result of incompetent technocrats who don’t know what they’re doing; instead, it’s the result of Chinese politicians recognizing the importance of this growth in progressing their political career.
There is reason for hope. Since coming into power, Chinese President Xi Jinping has pushed for reform in the Chinese political promotion system. Major news organizations like Bloomberg are reporting that “going green” is now as important of a metric as GDP growth for rising party officials. It’s still too early, however, to tell whether these reforms will have a meaningful effect on the Chinese political system.
So why are Chinese cities sprawling? It is not because local, provincial, and national officials don’t recognize that current growth patterns aren’t environmentally or financially sustainable. Instead, the financial and political incentives built into the Chinese system favor fast, “dumb” growth rather than slower, “smart” growth. The challenge of accommodating a large inflow of rural migrants is exacerbating these pressures.
Local government officials didn’t write the unofficial rules that dictate city growth. Sprawl isn’t necessarily a sign that they don’t know what they’re doing; rather, it’s potentially a sign that the “rules of the game” push them towards unsustainable policies. Chinese sprawl is not inevitable; rather, to push Chinese development towards a more sustainable path, officials at all levels of government will have to consider how they can reform the “rules of the game” to encourage smart, sustainable growth.
Beijing Subway Map
It is virtually impossible not to marvel at China’s new subway systems after spending some time in a city like Beijing or Shanghai. The relatively new subway systems allow for convenient and affordable (albeit crowded) way to travel around these cities. These infrastructure investments will certainly leave a lasting impact on Chinese cities for years to come, but what will this legacy be?
On one hand, this massive commitment to public transportation could be interpreted as China learning the lessons from American sprawl, suburbia, and private car ownership. On the other, we could be looking at the development of sprawl with Chinese characteristics, with subway systems playing the same role as the American interstate.
Urban planners generally consider sprawl to be bad- but why? Above all else, sprawl is environmentally and economically wasteful. By spreading out where people live, sprawl leads to infrastructure redundancy and the conversion of undeveloped land — land that could be used for agriculture or simply natural environment preservation (which provides a wealth of environmental services like improving air and water quality) — into developed land. Additionally, the further people live from where they work and play, the more likely they are to travel to those places by carbon-intensive modes of transportation (primarily the private automobile).
Sprawl is the major defining characteristic of 20th century American growth.While there are numerous reasons why this is the case (including Federal housing policy that encouraged home ownership), one theory that helps urban planners understand sprawl and suburbanization is the bid rent theory. At the heart of this theory is the idea that choosing where to live or set up a business is about balancing access to lots of people and rent prices; land users’ willingness to pay rent is dependent on their need for access to the central business district (i.e. downtown).
Figures 1 & 2. Bid-Rent Graph (left) and its Effect on City Structure (right)
Commercial services and retail (the blue line on the graph in Figure 1) benefit the most from close proximity to downtown, its density, and its high concentrations of people; therefore, commercial and retail entities are willing to pay the highest levels of rent, and the areas closest to downtown are generally dominated by commercial businesses.
Manufacturing and large retail (the green line) benefits some from access to people who work in factories and buy goods, but it also requires a greater area of land to set up production facilities; therefore, manufacturers and larger businesses often locate outside of expensive downtown areas but still somewhat close to the center.
Finally, though living in the center of a city is very convenient, housing prices (i.e. rent) are quite high. Residential uses (the red line) are generally seen to benefit the least from access to downtown, so people therefore are willing to live further away from the city center. The further one move out of the city center, the lower housing prices become; therefore, the outer regions of cities are usually dominated by residential development. When the lines on the graph are translated into a two-dimensional map, the city is divided into concentric zones. The spatial distribution of commercial, manufacturing, and residential areas under the bid rent theory can be seen in Figure 2.
Though the bid rent theory has its own limitations, it still provides a helpful way to understand American cities. In addition to the obvious information on willingness to pay rent for access to downtown by sector, bid rent graphs contain another important piece of information about consumer preference: the point at which each line crosses the x-axis (or where the rent becomes 0). The residential line is particularly important, as it shows the distance away from downtown where developing residential land becomes impractical (i.e. the land is worthless); in practice, this represents the outer boundary of cities.
Before the development of interstates, city size was greatly limited by travel time. Even though land exists beyond where the residential line reaches the x-axis, additional non-financial costs (particularly commute time) made living in these areas impractical. The American interstate system had a profound effect on the slope of the residential line on the bid-rent curve. Interstates, with higher speed limits and limited stops, significantly reduced travel times from employment in city centers to housing miles away, thus reducing the non-financial cost of living far away from downtown. As the residential line became flatter, and the x-intercept moved further away from downtown (see Figures 3 & 4); this means that previously impractical land became a viable option for some individuals. Cities, once limited in size by travel time, were able to expand far further than they were before interstates. Fifty years later, interstates have allowed cities like Atlanta and Houston to sprawl to incredible levels.
Figures 3 & 4. Pre & Post-Interstate Bid-Rent Lines (left) and its Effect on City Structure (right)
It’s easy to dismiss sprawling Chinese cities as inevitable, due to the large size of the population in an average Chinese city. However, the same factors that led to American sprawl (particularly a strong desire for homeownership) are also very important parts of Chinese culture. If homeownership is a significant priority yet housing prices remain unaffordable, the only option is to move further away from the city center.
If an individual’s only transportation options are buses, bikes, or even cars, non-financial costs like travel time would effectively limit the size of Chinese cities; however, land further from the center becomes more attractive when citizens have access to high-speed transportation options like subway.
Much like interstates did to their American counterparts, Chinese subways will flatten the residential bid-rent curve and allow for Chinese cities to grow increasingly expansive. Though this may not seem like a major problem, increasing the distance from downtown to city borders by 25% means increasing the total developed area by 65%. That’s a huge amount of land that could be used for other purposes like farming and environmental services.
There is a very compelling case for building these subways. The most compelling case is that China’s major cities are inevitably going to continue to grow. If Chinese cities do not develop extensive transportation infrastructure, then they may pay a major price in the future as they battle traffic congestion, environmental degradation, and high real estate prices (due to limited housing supply).
Alternatively, one could also argue that outward urban growth is not inevitable; in its place, cities would either become increasingly dense or people would just choose to move to smaller, less expensive cities. Some urban planners argue that American cities are reaching “peak sprawl” due to suburban developments reaching reasonable limits on individual travel time from job centers; is it possible that Chinese cities would reach the same point?
By increasing the area where city residents can reasonably commute to the city center, local governments are making land that was previously unappealing due to its distance from the city center more appealing (i.e. inducing demand). Rather than reducing traffic congestion, it could instead be enabling more people to move to these cities than would otherwise be feasible. This would put significant stress on existing infrastructure, encourage redundant infrastructure, and decreases green space surrounding cities.
Building these major subway systems can also pose major systemic issues to Chinese cities over the upcoming years and decades. Over the past decade, China has been grappling with high real estate prices. In the short-term, the government decreases the necessity of dealing with high real estate prices in city centers by increasing the overall supply of developable land through subways. Long term, as individual purchasing power increases and more people buy cars, more individuals may transition from public transit like subways to personal cars.
Chinese cities face problems that are unprecedented in both size and scale. Planning cities under these conditions is extremely challenging, and building massive transportation infrastructure is a logical way to manage the challenges that come with massive growth.
It’s easy to marvel at the sheer size and speed of growth of Chinese transportation systems. That said, the growth of Chinese subway systems isn’t necessarily a sign that China is fighting off American-style sprawl and suburbia; rather, it may setting the foundation for sprawl with Chinese characteristics.