When libertarians talk about Hong Kong, we drool over the fact that it has been the freest economy for at least the past 20 years. Its capitalist policies, although increasingly stained with high doses of cronyism, speak for the benefits of free market and liberty, especially when compared to its neighbor country, the People’s Republic of China, which has remained under 60% in the Index of Economic Freedom of The Heritage Foundation since 1995, and ranks 144th in a list of 178 countries, next to Guinea-Bissau and Malawi.
There are, however, a few indicators that, either because they are apparently unrelated to the economy or because they are hard to spot, are not measure by the Index of Economic Freedom. Here’s a look at five reasons why Hong Kong is not the capitalist utopia we imagine it to be.
[Note: Due to the extension of this article, I have decided to divide it into five post, one for every reasons, to be posted consecutively]
Housing in Hong Kong is VERY expensive. It is so expensive that it ranks “the most expensive housing market in the world for the sixth year in a row”, being “severely unaffordable” for most citizens. Married couples have to live separately with their own families, sharing overcrowded 50 sq. m. spaces or, in the most extreme cases, small “cage homes” where they can hardly fit a single bed. One of the main reasons is lack of competitiveness in the housing market, which usually translates as more government intervention, for instance, in the creation of public housing.
However, when we look at the data, we can clearly see how changes in pricing closely follow changes in politics –there is a correlation between them and the legislatures of Donald Tsang and CY Leung, with lower prices during the first years that followed the handover.
In the final years of Tung Chee-hwa legislature, between 2003 and 2005, a huge number of Chinese immigrants started to purchase property in Hong Kong to gain residency. These immigrants were not attracted by the freedom they couldn’t experience in China, neither were they running away from political persecution, as it happened during the Great Famine, the Cultural Revolution, or the economic eclipse that followed the Tiananmen Massacre –they were lured by immigration policies of the HKSAR government. As for 2007, more than 518,000 Chinese had emigrated to Hong Kong. This number increased to 762,044 by 2012, a tenth of the city’s total population and an average of 133-142 mainlanders per day. The fact that mainland immigration has been more or less constant for the past twenty years has an important effect on housing prices.
When China experienced the disasters of its authoritarian policies in the 1950s and the 1960s, immigrants boomed for a while, but once those who did not support the Chinese government established themselves in Hong Kong, immigration went back to normal. Immigrants entering Hong Kong after 1997 do not follow this pattern because they are “artificially” motivated by the HKSAR government policies. They basically keep coming and the city just cannot accommodate them because there is a lack of space in Hong Kong. It doesn’t help that many rich Chinese investors decide to buy government-sponsored housing projects, even if they do not move to the city and their apartments remain empty. As for 2009, as much as 40% of new-home sales buyers in Hong Kong came from China (note that the graph show a 17% fall due to the 2009 global financial crisis, not Chinese investment).
In 2010 Donald Tsang tried to “minimize intervention in the property market” by, well, intervening in the property market, for instance, by “increasing land supply” (more on this in the next point). Basically, the government created new housing by forcefully removing someone’s else property and transforming it into some huge building to be sold to new buyers who, in normal circumstances, would have had to compete in a free market. So yes, the government is increasing the possibilities of housing acquisition, but by doing so it not only steals private property –it also spends more money than it taxes for these gargantuan housing projects, making them unaffordable for most people. In fact, Donald Tsang was famously quoted as saying, “Hong Kong no longer follows a policy of ‘positive non-intervention’”. This was in 2006, one year and a half after prices started to go up again.
There are other issues related to government intervention in the housing market, including but not limited to private business moving to unthinkable locations because of Hong Kong’s real-state costs or the aforementioned “cage houses”, a direct result of market intervention, state-sponsored immigration, and the inability of the government to handle the consequences of their own planning. It should be noted that we also have some sort of “cage houses” in Europe –called “pisos patera” or “dink apartments” in Spain–, and they are usually limited to low-income Chinese immigrants.