Aiming for high quality growth in Hong Kong
Updated: 2011-06-21 07:15
By Ho Lok-Sang(HK Edition)
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Over the last quarter century, Hong Kong has allowed Singapore to overtake it, even though the two cities were growing neck-in-neck prior to 1987. In an earlier article I attributed the decline in growth largely to a shortage of land.
Hong Kong is strong in institutions, strong in infrastructure, and strong in human capital. It is among the most open economies in the world, and it is at the door of the Chinese mainland, the economic powerhouse of the day. Yet Hong Kong is growing much slower than Singapore.
We do not have a natural shortage of land, but we have decided to preserve our country parks, and we have deliberately slowed down the growth process for fear of excessive density and heat island effects.
This shortage of buildable land has been accompanied by an astronomical rise in the value of land, which has brought great wealth to their owners at the expense of the rest of the population. A natural result of this is that people are now pointing their fingers at the land developers.
A report from CB Richard Ellis indicated that Hong Kong's rent for retail properties jumped 46 percent year-on-year in the first quarter, reaching $1,697 per square foot, currently the second highest in the world. A 1,000 square foot premise on Wellington Street was recently leased to a Japanese boutique, Brand Off, at a monthly rent of HK$800,000 - double the rate of the earlier lease.
The land shortage has unfortunately led to a biased perception of the role of land developers. Because land developers collect a bigger profit when the values of their products rise, they take the brunt of public discontent. In a recent article, Alice Poon, the author of Land and the Ruling Class in Hong Kong, wrote: "in recent years, Hong Kong has experienced the ignominy of becoming a developed economy with the world's widest rich-poor gap. Indeed, having some of the world's richest tycoons residing near 1.26 million citizens who live below the poverty line is nothing less than shocking. This dichotomy has in fact convinced many Hong Kong people that the roots of their many deep-seated social and economic problems may be embedded in the land and tax systems which spawned the so-called high land price policy - an undeclared policy that past and present governments have quietly embraced."
To provide evidence for the "high land price policy," Alice Poon cited a study from the Lincoln Institute which showed that between 1970 and 1996, land revenue (land premiums, annual rent, rates and property tax) accounted for, on average, 33 percent of annual government budgets, and up to 45 percent of the government's revenue if profits tax from development companies and taxes on mortgage portfolio profits are included.
Poon is at least consistent because she believes that the government has deliberately slowed down the pace of land lease rights for development. But many people instinctively blame the government for siding with developers whenever the government approves an application for land development by a developer.
The truth is that whenever a developer applies for the conversion of land use, from agricultural to residential and other uses, it will face a lot of opposition - from both environmental groups and from residents in the neighborhood. Presently the SAR government is seeking possible locations where land may be reclaimed from the sea. But it is not going to be easy.
All this suggests that we are paying a truly astronomical cost when we designated the large stretch of reclaimed land in west Kowloon as the "West Kowloon Cultural District". We are similarly paying a huge price when we similarly limit property development on the land vacated by the closure of the Kai Tak Airport.
There is nothing wrong with accepting slower growth in return for a better environment. This may well be the "high quality" slower growth that we want. But in making this choice, we should know what price we are paying.
High quality growth requires several elements. First is balance: a balance between meeting competing needs. Second is fairness: a redistribution from those who collect the rents that have been surging on account of the greater scarcity of certain resources. Third is sustainability: concrete measures to ensure that the city remains highly livable notwithstanding growth.
I would contend that of the three, redistribution is the most burning issue that needs to be tackled. Alice Poon's allusion to "the hegemony/monopoly power of developers" is a case in point. The term is now accepted by most commentators. But actually even small landlords who wield no monopoly power are collecting huge increases in rent and capital gains, and there is nothing wrong with taxing land rent and economic rent in general. Australia is doing that with its mining companies.
The reason why the public accepts the "developers' hegemony hypothesis" so readily has to do with the unfairness that they perceive when developers and landlords collect so much rent, while others toil day and night paying for that rent before they can garner a small leftover to fill their basic needs. An appropriate degree of land "value recapture" and its redistribution to achieve greater fairness will revive the social cohesion that underlies a strong society.
The author is director, Centre for Public Policy Studies, Lingnan University.
(HK Edition 06/21/2011 page3)