Why is the Hong Kong Housing Market Unaffordable? Some Stylized Facts and Estimations

Abstract

The house price in Hong Kong is well-known to be "unaffordable." This paper argues that the commonly used house price-to-income ratio may be misleading in an economy with almost half of the population living in either public rental housing or subsidized ownership. Moreover, we re-focus on the relationships between economic fundamentals and the housing market of Hong Kong. While the aggregate GDP, population and longevity continue to grow, the real wage and household income fall behind. The trend component of the real GDP growth suffers a permanent downward shift after the first quarter of 1989 (a "political scar"). The trend component of real wage growth is close to zero, and the counterpart of real consumption and real investment decline steadily. Meanwhile, the trend component of the real housing rent and price display patterns that decouple from the macroeconomic variables. We also discuss the directions for future research.

A robust textual analysis of the dynamics of Hong Kong property market

“…Huang et al (2018) propose a search-theoretic model to explain the Hong Kong housing market's price-rent ratio and turnover rate. Leung and Tse (2017), Leung et al (2020b) and Tang (2021) stress the speculation in the real estate markets. 2 Newspapers are the key sources of information for the Hong Kong public.…”

“…In addition, almost one-third of the Hong Kong Government revenue depends on the property market performance (e.g., stamp duties and land premiums). Although many studies have examined Hong Kong's real estate market because of its salient features and importance to the economy (e.g., Huang et al, 2018;Kwan et al, 2015;Leung & Tse, 2017;Leung et al, 2020b;Tan, 2019), most of these studies did not discuss the sentiments channel in detail. 1 Given the importance of the real estate sector in Hong Kong, understanding the sentiments channel of the housing market is a key matter for macro-financial stability.…”

The dynamics of the house price‐to‐income ratio: Theory and evidence

“…1 See Chen and Cheng (2017), Leung (2004), Leung and Ng (2019), Leung et al (2020), among others, for a review of the literature. 2 In the literature, "affordability" may carry different meanings in different contexts and can be measured differently.…”

“…1 1 See Chen and Cheng (2017), Leung (2004), Leung and Ng (2019), Leung et al. (2020), among others, for a review of the literature. …”

Introduction to the Handbook of Real Estate and Macroeconomics

“…Another essential issue bridging real estate and macroeconomics is housing affordability. Economists have studied housing affordability for decades, and now it has become a global concern (Gong and Leung, 2021;Green and Malpezzi, 2003;Leung and Tang, 2021;Leung et al, 2020;Malpezzi, 2020;Quigley and Raphael, 2004;Yao, 2020;Yılmaz and Yesilırmak, 2020). Part II of this book examines the issue from different angles.…”