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Land Demand of Hong Kong

Land Shortfall is Much Higher than 1,200 Ha

There is an obvious land shortage to meet the different needs of Hong Kong, as shown by the rising property prices and rents; average waiting time of 4.7 years for public rental housing (PRH); and some 93,000 sub-divided units in 2016.

The Task Force has reviewed the estimations of land supply and demand under “Hong Kong 2030+: Towards a Planning Vision and Strategy Transcending 2030” (Hong Kong 2030+). According to Hong Kong 2030+ study, the land requirement for the next 30 years will be no less than 4,800 ha. Taking into account the land supply of 3,600 ha or so from committed and planned developments, Hong Kong will still face a land shortfall of at least 1,200 ha in the long run up to 2046 (see Figure 11). This is equivalent to the area of more than 60 Victoria Parks.

  • In 2015, the Planning Department (PlanD) commenced the Hong Kong 2030+ study, mainly to update Hong Kong's territorial development strategy and spatial planning framework. This is to guide future planning, land and infrastructure development, as well as the shaping of the built and natural environment.
  • A six-month public engagement exercise for Hong Kong 2030+ was initiated in late October 2016. The Government is analysing in detail the public views received and is conducting various technical assessments.
Figure 11: Estimation of Overall Land Supply and Demand up to 2046 (hectares)
Source: PlanD
Notes:
  1. The column on land supply assumes timely delivery (including funding, land resumption, compensation, rehousing arrangements and construction works, etc.) of all expected land supply developments. Land for residential uses involves a number of expected private development/redevelopment projects and their actual implementation progress is subject to market factors.
  2. The column on demand for land for residential uses does not take into account public aspiration for improvement in living space.
  3. Only the three market-driven economic uses expected to experience shortfalls (i.e. Central Business District (CBD) Grade A Offices, General Industries and Special Industries) and certain non-market-driven uses related to industries and businesses (i.e. industrial estates, science parks, port back-up facilities, convention and exhibition facilities and wholesale food markets) are included. Uses prone to the impact of external factors and thus being more susceptible to fluctuations in demand (e.g. retail), uses of which long-term land demand is not yet ascertained by relevant policy bureaux in assessments (e.g. convention and exhibition facilities), and uses of which land demand is to be ascertained by ongoing consultancy studies (e.g. facilities related to the construction and recycling industries) are not included.
  4. Various G/IC facilities, open space, as well as transport and infrastructure facilities are included. Additional land demand arising from updated policies (e.g. increase in demand for elderly service facilities as assessed by the Elderly Services Programme Plan) is not reflected.
  5. As a result of (ii), (iii) and (iv), the total shortfall is the minimum figure.
  Up to 2026 2026 – 2046 Total Shortfall(v)
Demand Supply(i) Shortfall Demand Supply(i) Shortfall
Land for Residential Use(ii) 768 660 -108 902 780 -122 -230
Land for Economic Use(iii) 196 61 -135 262 141 -121 -256
Land for Infrastructure and Facilities(iv) 1,661 1,089 -572 931 783 -148 -720
Total 2,625 1,810 -815 2,095 1,704 -391 -1,206

Regarding the 4,800-ha land demand and the underlying assumptions adopted by Hong Kong 2030+, the Task Force notes that these estimations are on the conservative side, failing to give due regard to factors such as the public aspiration for improvement in average living space per person; faster-than-expected growth in the demand for healthcare and welfare services arising from an ageing population; possible need to speed up urban renewal; it also does not include land requirements of certain industries, etc.

Regarding the 3,600-ha land supply, the Task Force recognises the considerable uncertainty of its delivery. Firstly, as at end-March 2018, about one-third of the 210 or so sites with potential for housing development identified through land use reviews have yet to commence the rezoning procedures; development of some of the potential housing sites might have to be scaled down or even put on hold due to local objections to infill developments. Secondly, a number of challenges are expected for the implementation of NDA plans such as Kwu Tung North/Fanling North, Hung Shui Kiu and Yuen Long South. These hurdles include the funding application to the Legislative Council (LegCo), and the compensation and rehousing arrangements for those affected by land resumption and clearance. As a result, changes might be needed to the schedule and scale of development. If these two main sources of land supply fail to materialise on schedule or even not at all, the final land supply will be less and available later than expected.

Considering that land demand may be higher than the estimate while the supply is subject to uncertainties, the Task Force is of the view that the land shortfall of at least 1,200 ha is a conservative estimate, and that the actual shortfall may be much higher than 1,200 ha. This will be taken as the basis for the public engagement.

The demand and supply of land is not only about areas but also about the timing of the land shortages; these two issues need to be considered together before the problem can be appropriately tackled.

For example, among the 1,200-ha shortfall, a shortfall of about 815 ha is expected to emerge before 2026 (Figure 11), which includes a shortfall of some 108 ha for housing (Figure 12). The problem of land shortage is real and needs to be resolved.

The currently committed or planned major development projects are expected to provide only 600,000 housing units
Notes:
  1. In the short to medium term, by way of changing existing land uses and increasing development intensity by the Government, a total of over 380,000 residential units can be provided. In the medium to long term, various NDAs and new town extensions, as well as potential railway property development projects, can provide over 220,000 residential units.
, but there is still a need of 230 ha of residential land to meet the housing demand over the next 30 years. This will particularly be the case in the later years, when the continual growth in population and household numbers, as well as urban renewal, will also contribute to the increase in housing demand.

Figure 12: Estimation of Supply and Demand for Land for Residential Uses up to 2046
Notes:
  1. The column on demand for land for residential uses does not take into account public aspirations for improvement in living space.
  2. The column on supply assumes timely delivery (including funding, land resumption, compensation and rehousing arrangements, construction works, etc.) of all expected land supply developments.
  3. The public and private housing demand for 2016-2026 is projected on the basis of the ten-year (2016/17 to 2025/26) housing supply target of the Long Term Housing Strategy (LTHS) Annual Progress Report 2015, including a total of 460,000 units that comprise 280,000 public housing units and 180,000 private housing units. Housing demand projection covers four main demand components, namely net increase in the number of households, households displaced by redevelopment, inadequately housed households, and miscellaneous factors.
  4. Among these, estimation of land supply for private housing involves a number of expected private development/redevelopment projects at present and their actual implementation progress is subject to market factors.
  5. The projection methodology of the LTHS is largely adopted for the public and private housing demand for 2026-2046. The housing demand of inadequately housed households which already existed in 2016 has been included in the housing demand projection for the first ten years (i.e. 2016-2026). Conceptually, any additional housing demand arising from new households subsequently formed (including new inadequately housed households) will be reflected in the projection for "net increase in the number of households".
Source: PlanD
  Land for Residential Uses (ha)
Demand(i) Supply(ii) Shortfall
Year Up to 2026(iii)
Public Housing 257 208 -49
Private Housing 511 452 -59(iv)
Total 768 660 -108
Year 2026-46(v)
Public Housing 300 228 -72
Private Housing 602 552 -50(iv)
Total 902 780 -122
Year 2016-46
Public Housing 557 436 -121
Private Housing 1,113 1004 -109
Total 1,670 1,440 -230

Insufficient Supply for Different Types of Land

Land supply for housing, economic uses, various G/IC, recreation space or transport and infrastructure facilities are insufficient to fully meet the relevant demands as forecast by the Government. The Task Force has the following key observations on the supply and demand projections for various types of land use under Hong Kong 2030+:

Housing land

The Task Force notes that the housing demand estimated under Hong Kong 2030+ is mainly based on the supply target of the Long Term Housing Strategy (LTHS) Annual Progress Report 2015. According to the LTHS announced in 2014, the Government updates the long-term housing demand projection annually and presents a rolling ten-year housing supply target in order to reflect the latest overall situation, instead of using the projection of the accumulated demand
Notes:

According to the projection model of the LTHS, members of the public who intend to form a separate household (e.g. newlywed couples) and fail to do so due to shortage of housing supply would normally stay at their current residence (e.g. living with parents). As they still intend to form a separate household, their housing demand will be reflected in the "net increase in number of households" category and counted in the total housing demand in the course of the rolling projection. If the abovementioned persons choose to move into inadequate housing (e.g. subdivided units) due to insufficient housing supply, their housing demand will be reflected in the "inadequately housed households" category and counted in the total housing demand. Therefore, the Government holds that the above-mentioned projection model will not underestimate long-term housing demand due to continued shortage in housing supply.

resulting from the supply shortage in the past as the basis. Under the Hong Kong 2030+, the total housing demand for the 30 years up to 2046 is estimated to be about one million units.

As mentioned above, supply of housing land is severely strained and the implementation of various initiatives is subject to considerable uncertainties. The problem for public housing is particularly obvious and acute. According to the latest projection, the total housing supply target for the coming 10 years (i.e. 2018/19 to 2027/28) is 460,000 units. The biggest components of housing demand are due to a net increase in the number of households and the need to cater for inadequately housed households. Of the target supply of 460,000 units, public housing accounts for 60% (i.e. 280,000 units), and private housing accounts for 40% (i.e. 180,000 units).

However, the sites identified could only allow for the construction of 237,000 public housing units, falling short of the target of 280,000 units by 43,000 units.

It is noteworthy that the above-mentioned shortfall of 43,000 units is based on the assumption that all sites identified can be delivered smoothly for housing development. Among the housing developments of the three NDAs, namely Kwu Tung North/Fanling North, Hung Shui Kiu and Yuen Long South, no less than 50% will be public housing, capable of providing 85,000 units in total. Under the current plan, the first population intake of these NDAs will begin in 2023, 2024 and 2027/28 respectively.

If there were any delay to the delivery of any of these NDAs due to clearance, rehousing or other issues, the shortage of public housing supply over the next ten years would exceed 43,000 units.

As of December 2017, there were about 155,100 general PRH applicants and about 127,800 non-elderly one-person applicants under the Quota and Points System. The average waiting time for general applicants was 4.7 years, exceeding the HA's target of providing the first flat offer to general applicants after around three years on average. In view of the persistently strong demand for public housing, the waiting time for public housing would likely be longer.

The above-mentioned figures reflect to a great extent the reality of the lead time required to undergo the relevant planning, works preparation and construction even if housing land is identified. In fact, "spade-ready" sites
Notes:

"Spade-ready" sites are sites that have been properly zoned, and do not require resumption, clearance, reprovisioning of existing facilities, site formation or provision of additional infrastructure.

for public housing development are increasingly hard to find.

Figure 13: General Procedures and Time Required for Housing Development on "Non-spade ready" Sites
Source: TFLS Paper No. 10/2017
(Figure 13)

However, the estimation of land requirements has yet to factor in any buffer/contingency to cater for unforeseen circumstances, other possible initiatives relating to housing policy, as well as the long-term vision for a better environment and larger living space, etc.

According to the results of C&SD's 2016 Population By-census, Hong Kong's median floor area of accommodation of domestic households was about 430 sq. ft. while the median per capita floor area of accommodation of domestic households was about 161 sq. ft. If we would like to seek improvement in the average living space per person for Hong Kong, we need more land; such additional demand for housing land is not included in the Hong Kong 2030+ estimation at present.

From the conservative point of view, if future land supply fails to make up for the shortfall of some 230 ha of housing land as estimated in Hong Kong 2030+ in a timely manner, coupled with the uncertainties of existing land supply projects, the land shortfall will aggravate, severely affecting the housing conditions and livelihood of people.

The average waiting time for PRH applicants will inevitably increase further. Rents and prices of private residential properties may continue to soar. It would also be more difficult to find ways to increase the average living space per person and improve the crowded living environment for Hong Kong in the long run.

On the other hand, the need for and scale of rejuvenation or redevelopment of the urban areas may rise substantially over the years in future, especially in two or three decades when the bulk of the current stock of buildings is ageing fast. Based on the current age profile (Figure 14) and assuming that no housing units are demolished, it is estimated that there will be about 326,000 private housing units aged 70 years or above by 2046, up from about 1,100 units at present (i.e. an increase of nearly 300 times). Most of these buildings are concentrated in the older urban areas.

According to the estimation of Hong Kong 2030+, there will be 318,200 households being displaced by redevelopment in the next 30 years. Among these, 22,200 households will come from public housing units. The Task Force is of the view that the estimation might have under-estimated the need for redevelopment of public housing estates. These public housing buildings will continue to age and generate the need for redevelopment, regardless of the redevelopment plan by the Government.

Redevelopment of private residential buildings takes a long lead time mainly due to the protracted process for amalgamating the fragmented ownership, compensation and rehousing tenants/occupiers, and the considerable time required for going through the necessary development processes. Even though some redeveloped sites may contribute eventually to housing supply, the prolonged process and escalating scale of urban redevelopment will inevitably lead to additional demand for housing units. This may arise from units in buildings undergoing redevelopment being kept unoccupied for prolonged periods; reduction in housing units during the actual reconstruction; existing occupants being displaced upon redevelopment, etc. Some of the sites may be used for non-residential purposes after redevelopment, resulting in a reduction in housing supply.

Figure 14: Age Profile of Existing Private Housing Stock
Source: TFLS Paper No. 02/2017
Figure 14
Figure 14

Moreover, due to various factors, if the plot ratio of an old building exceeds the development intensity permitted under the prevalent town planning provisions and the Buildings Ordinance, the plot ratio of the redeveloped residential buildings may not necessarily be increased. Under this circumstance, redevelopment projects may increase the demand for vacant space and land.

The Task Force points out that, given the continued increase of ageing building stock and the current modest scale of urban regeneration, the community as a whole should step up its efforts to rejuvenate the extensive old urban fabric, especially in the older urban areas, in order to relieve urban decay and improve the living environment. The Government should proactively map out a strategy to address the issue of ageing buildings and introduce appropriate measures in a timely manner.

The pace of urban redevelopment may eventually be changed in response to new policies and initiatives. As such, the figures of land supply and demand projected under Hong Kong 2030+, which are based on assumptions over a certain scale of urban redevelopment, are subject to a number of uncertainties.

Economic land

The "Review of Land Requirement for Grade A Offices, Business and Industrial Uses"
Notes:

The review adopted a quantitative model based on statistical relationship between floor space, actual forecast growth rates of the GDP in Hong Kong and Guangdong, and adjusted according to cumulative potential demand, to assess the aggregate floor space demand of five types of the economic land uses (i.e. CBD grade A Offices, non-CBD Grade A Offices, General Business, Industries and Special industries) over the projection horizon in the short, medium and long terms.

conducted under Hong Kong 2030+ mainly aims to project the future land/space demand for market-driven economic land uses. The overall economic land demand in the long term is estimated to be 200 ha in net site area.

The above-mentioned estimation does not take into account other market-driven land uses which are affected by external environmental factors and thus more susceptible to fluctuations in demand (e.g. retail and hotel). It is also difficult to estimate the demand from the cultural and creative industries. Moreover, the quantitative models adopted is relatively conservative and may not be able to fully reflect all the factors (e.g. the Mainland's actual GDP growth and its structural change in economy) that might affect the demand for such land/space in Hong Kong.

In fact, after a modest cumulative growth of 9% in real terms between 1997 and 2003, the GDP of Hong Kong picked up and rose by about 33% in real terms between 2006 and 2016. Nevertheless, during the same period, floor space for economic activities only recorded a modest increase. For example, from 2006 to 2016, the total private office stock increased by only about 17%. The vacancy rate of private offices was 8.2% in 2016, and that of private offices in Central was as low as 4.1%. The private office rental and price indices rose on a trend from 117.4 and 139.3 in 2006 to 232.3 and 426.9 in 2016 respectively, while it subsequently reached 241.8 and 487 in 2017.

The continued rise in rental level over the past few years reflects a shortage in supply of Grade A Offices. The Task Force notes that the projection made under Hong Kong 2030+ has yet to fully reflect the suppressed or unmet potential demand of Grade A Offices which resulted from the present situation of high rents and prices due to shortage of floor space for economic activities (e.g. foreign enterprises choosing not to set up offices in Hong Kong). In addition, new national policies such as the Development Plan for a City Cluster in the Guangdong-Hong Kong-Macao Bay Area and "Belt and Road" initiative will further boost the demand for offices (especially Grade A Offices) from mainland/foreign companies.

As such, the overall economic land demand of Hong Kong should exceed the projection under Hong Kong 2030+.

On the other hand, according to the demand projection for non-market-driven economic land/space under Hong Kong 2030+, it is estimated that the relevant long-term land demand will be 257 ha. But this has not included the long-term land demand which is yet to be ascertained by the relevant policy bureaux during the assessment stage (e.g. convention and exhibition facilities), and uses of which land demand is to be determined by ongoing studies (e.g. facilities related to the construction and recycling industries).

Together with market-driven (200 ha) and non-market-driven (257 ha) demand for economic land/space, the Hong Kong 2030+ forecasts that overall long-term demand for economic land will reach 457 ha, whilst supply will only amount to around 200 ha.

If the future land supply fails to make up for the minimum shortfall of some 256 ha of economic land as estimated in Hong Kong 2030+ in a timely manner, coupled with the uncertainties of existing land supply projects, the shortfall of economic land will aggravate and jeopardise the sustained economic development and the employment situation of Hong Kong.

Specifically, due to the obvious shortage of floor space for economic activities, the current situation of high rents and prices is expected to worsen and further undermine Hong Kong's competitiveness.

Besides, emerging industries requiring cheaper floor space (especially innovative technology and startups) may not be able to develop fully in Hong Kong due to the continued shortage of economic land and high operating costs. This will in turn impair the structural change in Hong Kong's economy and employment opportunities for the people.

Government, Institution or Community (G/IC) uses, open space and transport and infrastructure facilities

The Task Force notes that, according to the estimation of Hong Kong 2030+, there will be a land shortage of 720 ha for G/IC uses, open space and transport and infrastructure facilities, on top of a shortfall of about 670,000 square metres (m2) floor space. However, this projection has yet to include: (i) land demand arising from the latest policies (e.g. new demand for elderly service facilities proposed under the Elderly Services Programme Plan; additional demand for space arising from kindergarten policies); and (ii) certain uses of which the long-term land demand is not yet ascertained by the relevant policy bureaus during the assessment stage (e.g. tertiary education and certain healthcare facilities).

In addition, the Task Force notes that Hong Kong 2030+ proposes to enhance the land and space provision for G/IC uses and open space for the future additional population, by adopting a higher ratio of 3.5 m2 per person and a minimum of 2.5 m2 per person for the strategic planning of demand for G/IC facilities and open space respectively. However, it should be noted that this target of higher provision of G/IC land and open space per person is only adopted for the rough calculation of future land demand for relevant facilities from the new population growth. In fact, as the current population ages, there will naturally be greater demand for healthcare and elderly service facilities, as well as open spaces. As such, there is room for upward adjustment of the above-mentioned planning standard.

In general terms, the future land demand for the relevant facilities in Hong Kong will likely exceed the current estimation. If the future land supply fails to make up for the land shortfall of some 720 ha for G/IC uses, open space and transport and infrastructure facilities as estimated in Hong Kong 2030+ in a timely manner, coupled with the uncertainties of existing land supply projects, the shortfall of such land will aggravate, thereby affecting the livelihood of the people and the provision of necessary facilities and services to cater for the needs of the society.

There may also be insufficient space to meet the needs of new facilities and services arising from the demands of an ageing population. The public aspiration and long-term vision for more open space and spaces for recreational activities will also be un-met.

Land Reserve to Cater for Unforeseeable Needs

The Task Force notes that development projects such as NDAs and extension of new towns are a major source of land supply in the medium to long term which often take 10 to 15 years to study, plan, design and implement. The process is also subject to many uncertainties and external factors, often delaying the completion and reducing the subsequent land supply.

As land development takes time, it will certainly be too late to identify land resources only when there is shortage, which is the lesson we learn today.

Therefore, Hong Kong needs to develop a land reserve to cater for unforeseeable needs and provide flexibility and capacity as buffer in the planning of land requirements.

For example, with sizeable land reserve in the long run, the Government will have greater flexibility in planning to provide land for different uses as necessary in a timely manner, and ensure a more steady and sustainable stream of land supply in the market. The land reserve will also help enhance our overall development capacity to take economic opportunities and face challenges that come unexpectedly; it will also reserve adequate space for implementation of new initiatives that can realise our vision of improving the living environment and liveability of the city.

Hence, the Task Force believes that, apart from meeting the demand projected under Hong Kong 2030+, the community should do more to identify more land resources for building up a land reserve for Hong Kong.

According to research conducted by an international institution, in general the higher the population density of a city, the lower the liveability ranking. In fact, as highlighted in Figure 15, all cities that come higher than Hong Kong in terms of liveability ranking have a population density of about 10,000 person per square kilometre (km2) or less on their developed land; that is far below Hong Kong's density of some 27,000 person per km2. Compared to international cities such as London, New York City and Tokyo, Hong Kong's population density is at least five times higher. As such, it would be very difficult to improve the liveability of Hong Kong without lowering our population density (through creating and developing more land). On the contrary, re-use of existing developed land (e.g. by converting existing open space, government facilities, etc. into residential units) will only drive up further the already high population density.

Figure 15: Comparative Liveability Matrix
Source: Hong Kong 2030+: Towards a Planning Vision and Strategy Transcending 2030
Figure 15

Specifically, if there is consensus in the community for a more spacious and better living environment, through increase of the existing average living space of about 160 sq. ft. (Figure 16) or a further upgrade of the planning standards for G/IC facilities and open space per person; and also consensus on the need to promote the competitiveness and diversified economy of Hong Kong through provision of more floor space to lower the operating and start-up costs of businesses in the long run, then the additional developable land required by Hong Kong in the future will exceed the current estimation of 1,200 ha at the minimum. This underpins the importance of building up a land reserve.

A land reserve needs to be built upon a surplus of the land supply exceeding the demand. Judging from the strained supply of spaces for all uses including residential, commercial and G/IC facilities, it would be grossly insufficient to develop a land reserve by just meeting the "planning shortage" of 1,200 ha, as projected under Hong Kong 2030+.

Figure 16: Comparison of Living Space Per Person for Selected Countries/Cities
Sources: C&SD; South China Morning Post; Shenzhen Economic Daily; Skytree Strategy and Statista
Figure 16

It must be emphasised that the above-mentioned data on land requirements is merely projections based on many assumptions about the future, which is hard to predict accurately.

It takes time to increase land supply. It is an impossible mission to fill any gap in land supply within a short span of time when there is no or low land reserve. On the contrary, the surplus in land as a result of over-estimating the land requirement can be set aside as a reserve to cope with changes in the market or social environment.

The current land shortage in Hong Kong shows vividly the consequences of under-estimating land demand, which are much worse than that of an over-estimation.

To avoid a repeat of the past, the Government must pursue land supply initiatives regardless of the short-term economic fluctuations. Planning and development of land must also be taken forward well ahead of time in a sustained manner. Not only should the Government proceed aggressively to catch up on the shortfall in land supply and avert the current demand-supply imbalance; land use planning must also be pursued for Hong Kong's sustainable development, to formulate a stable development strategy and establish a land reserve.