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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.
