HK Monetary Policy and Housing Affordability

Transcription

1 Workshop on Social Model, PolyU Hong Kong 29 Nov 2013 HK Monetary Policy and Housing Affordability by Dr Edward CY Yiu Associate Professor Dept of Geography and Resource Management, Chinese University of Hong Kong 1

2 5 Features of HK Housing Market Land supply is very limited and is at the discretion of the government; Housing prices are extremely volatile; The average price appreciation rate is among the highest in the world; Developments are concentrated among a few large developers; The public housing sector is the second largest in the capitalist world. (Lai and Wang, 1999) Why? 2

3 Land Use Area (ha)- SIN v HK 2010 SIN 2012 HK Res. 10,000 (14%) 9,760 (9.5%) Ind./Com. 9,700 (13%) 2,300 (2.1%) Green 5,700 (8%) ~73,000 (66%) GIC 5,400 (8%) 3,700 (3.5%) Total 71, ,200 Land is NOT limited by is at the sole discretion of the government.

4 Modest overall density, but very high urban density of HK.

5 Population and Households HK Year Population No. of Households Ave Household Size Mid ,345,100 1,334, Mid ,919,000 1,677, Mid ,731,000 2,081, Mid ,184,000 2,420, Strong growth of population and number of households

6 Housing Stock HK Year Private Housing Subsidized Housing Public Rental Housing Total Housing Stock - Households ,000 36, ,000 1,111, , , , ,000 1,696,000-10, ,258, , ,000 2,332, , ,458, , ,000 2,616, ,200 Fast increases of both public and private housing stocks, from shortage to surplus

7 Then, Why HK still Has Housing Problems? Unaffordable Housing; Subdivided Flats and Coffin Rooms; Dilapidated Buildings and Walled City. 7

8 Country/ city GDP per Capita Ave. Living Area (sf) Per Person (sf) US 51,704 2,476 ~800 Taiwan 38,357 1,119 ~370 SIN 60,799 1, Tokyo 35, ~220 Shanghai 9, HK 50, Ave per person living area of HK = 0.5 of SIN

9 Unaffordable Housing Median to Median International Std 2012 HK Price to Income Ratio Rent to Income Ratio < 6 15 < 30% 37% A decent housing in HK is unaffordable

10 Price to Income Ratio: HK 2011 = 12.6 SIN 2011 = 4.4

11 Decade s Mortgage Tenure Max LTV Max Tenure HPI MTI Ratio 1970s 90% 10 yr 20 NA 1990s 70% 20 yr % 2000s 70% 25 yr 60 20% 2010s 50% 30 yr % 2030s? 40 yr???

12 Mortgage-to-GDP Ratio Asia Moderate MTGR: MTGR of HK grew from 30% in 1996 to 50% in 2002; then dropped to 30% in 2007, back to 45% in MTGR of China is just 17% in MTGR of Singapore increase from 20%- >40% in 13 years

13 Housing Price Volatilities +60%,-40%! Global #1 Increase

14 Government s Roles in the Housing Sector Govt cannot let housing price drop Bank Risk Users (Quarters) and Facilitators (Loans) BANKS / HKMC Income Monetary Policy Sole Land Supplier (18% land sale income excl. other related taxes) Govt s Roles in Housing Market Negative equity and unemployment Biggest Developer and Housing Owner (Public Housing) Private Housing Market HOS (by lucky draw) PRH (by queuing) Policy Maker and Law Enforcer 14

15 Asian v. Western Approach Asian approach direct, planned economy: (lower risk but costly and inefficient) Government builds and provides shelters to the needy Provide home rental or buying subsidy; China Singapore (80% in HDB) Hong Kong (50% in PRH, HOS, TPS) Western approach indirect, financial engineering: (efficient but risky) Provide mortgage loan subsidy; Housing inclusion and tax relief; Deregulation and securitization. MBS REITs 15

16 Homeownership Ratios in Asia 2013 Singapore: from 29% in 1970 to 92% in 2000; China (urban): from 17% in 1985 to 82% in 2010; HK: 35.1% in 1986 to 51.3% in 2013 (Target was 70%, TPS in 1997). Ronald and Elsinga (2012), Census and Statistics Department, HKSAR 16

17 Homeownership Makes Citizens Under Control the Thatcher governments utilised increasing levels of home ownership as a means of making citizens responsible consumers by exposing them to the outcomes of monetary policy. Perhaps now the credit crunch is another realisation of this policy. (Rowlands, 2010) 17

18 How HK Monetary Policy Affects Housing Price? Currency Board Arrangement Currency exchange rate is fixed! Linked Exchange Rate (peg) US$1 = HK$7.8; Interest rate is fixed! If the rate does not follow the US's, arbitrage can make no-risk profit!! (carry-trade) Inflation does not follow Economic conditions very different from the US; When the economic conditions are opposite, then Either a LOW INTEREST RATE + HIGH INFLATION; Or a HIGH INTEREST RATE + HIGH DEFLATION.

19 Negative Correlation of Real Interest Rate & Housing Price Casual observations confirmed the negative relationship hypothesis: HIBOR % CPIA yoy % RIR HPI (yr end)

20 RIR v. HPI yoy of HK

21 RIR v. HPI yoy of HK

22 A More Robust Empirical Test 2010 JFMPC 14(3),

23 Implications of Neg. RIR Saving in cash is a net loss; Borrowing to invest in housing is costless; Monthly mortgage payment < Monthly rent; The risk of loss is capped by government bailout; Who can borrow more determines who can earn more; Low interest rate in the US usually accompany US$ drops; If US$ drops, foreign investors can earn both capital gain and currency gain, by buying HK housing units.

24 The End comments are welcome. Enquiries to: 24