Balancing Land and Housing Policy:Finding Common Ground Between Government Intervention and Free Market

Introduction

Government land and housing policies significantly impact investors' return expectations. At the same time, investors' actions, based on these expectations, should also influence government policies to create a healthy, balanced ecosystem. Striking this balance requires careful attention, particularly in maintaining consensus between market freedom and government intervention.

The Importance of Policy Clarity

Over the past five years, institutional investors have become increasingly cautious about Hong Kong's economic outlook, while government land and housing policies have shown inconsistency. This lack of consistency has led institutional investors to adopt a wait-and-see approach. This year's Policy Address proposed relaxing demand-side measures on residential properties, with the Financial Secretary stating that the goal was to return the housing market to a pre-regulation state, allowing the market to self-adjust. However, the Financial Secretary also emphasized the government’s commitment to actively increasing land and housing supply to stabilize the market during volatility.

These mixed signals create confusion: Is the market expected to adjust independently, or is the government intervening to control residential property supply? This lack of policy coherence undermines transparency, reduces market confidence, and makes it challenging for institutional investors to understand policy direction and plan long-term.

Defining Public and Private Market Boundaries: Residential and Commercial Units

In the public sector, the government's role is to provide affordable housing for low- and middle-income groups and to adjust supply as needed to reduce social pressure. This approach allows families to allocate resources toward education, thus enhancing social mobility. However, in the private market, excessive government intervention raises investors' concerns about the viability of long-term investments.

For institutional investors—whether developers of residential and commercial properties or operators (landlords and tenants) of commercial units—stable and transparent policies are essential for long-term planning and budgeting. When policies are inconsistent or involve excessive intervention, supply and demand dynamics become distorted, resource allocation becomes inefficient, and market transparency and competitiveness are eroded, all of which harm long-term economic health.

Commercial land should be even less subject to government intervention, as the formation of business hubs is primarily market-driven. For instance, Central has become a hub for international institutions due to its concentration of banking and financial resources, while Tai Po Science Park has attracted startups due to its proximity to university research centers. These areas thrive because companies and landlords respond to market demand. In contrast, government-planned thematic districts often fail to achieve their intended goals, ultimately becoming residential projects and facing market criticism, which complicates institutional investors' decision-making.

To sustain these commercial areas, the government should focus on providing stable infrastructure, such as reliable power, efficient public transportation, and streamlined administrative processes, to support landlords' and tenants' long-term operations rather than directly interfering with supply and pricing.

Lessons from the Past: The "Nine Measures" (孫九招)

Last week, former Financial Secretary Antony Leung's passing sparked recollections of his implementation of the "Nine Measures" to control property prices. Initially intended to stabilize the market, these measures effectively discouraged both investors and homeowners from adequately responding to market conditions and are still widely regarded as having harmed the long-term health of Hong Kong's real estate market. This example reminds us that one-sided policies can have lasting adverse effects. Today, the government’s land and housing policy should aim for a balanced approach that includes input from all stakeholders to create a more inclusive and stable framework.

Re-evaluating "Past Government Experiences"

The Financial Secretary has stated that land development efforts should continue regardless of housing market fluctuations, citing "experience from previous administrations" as a guide. However, Hong Kong's economy has evolved considerably, especially since 2020. Reliance on past experiences alone is insufficient to address today’s challenges. For government policy to be effective, it must respond flexibly to current market demands rather than rely on outdated strategies.

Small Government, Big Market: The Way Forward

In a rapidly changing financial environment, only a "small government, big market" approach can promote sustainable economic growth. This model allows the market to reach its full potential, generating jobs, fostering innovation, and ensuring sustainable growth, while reducing the risk of over-regulation that could stifle market vitality. The government's optimal role is to provide a stable and easy-to-understand policy environment that ensures fair market operations, allowing Hong Kong to maintain its competitive edge as a free market.

The Value of a Free Market

A free and transparent market attracts savvy investors, each contributing unique perspectives to achieve an optimal supply-demand balance. Institutional investors—whether developers of residential and commercial units or operators of commercial spaces—rely on market transparency and stable policies to create long-term strategies. Such a market allocates resources efficiently, encouraging innovation and cost-effectiveness, ultimately benefiting all stakeholders. In contrast, government intervention is often costly and less effective. The government should prioritize promoting market transparency to boost public confidence and encourage greater investment participation. Additionally, the government should focus on establishing regulations and a robust framework to ensure fair trading, rather than directly intervening in market prices and supply.