Monday, August 08, 2005

The Archaic Land Rules of Hong Kong and Kwun Tong

Hong Kong is by all accounts a modern, cosmopolitan and progressive city. Yet the rules regarding this metropolis's sacred cow - property - are incredibly archaic, based on hastily drawn-up regulations about land use and ownership all the way back to the 1840s and the time of the Opium War. Wu Zhong, a thoughtful columnist in the Standard, argues today that the rules for land use in post-Communism China were modeled on Hong Kong's, but that ultimately the country should move to a model of permanent, freehold land ownership instead. I heartily agree, both for Hong Kong and for China. Wu Zhong argues for permanent ownership in China because of fears of government corruption when it comes time for owners of land whose lease is expiring try to renew title to it. But it is equally important for people to own land, to feel they have a stake and are truly part of a community, rather that just a city full of people in transit.

In a post last Thursday on Ingrid Hu's Southorn Playground project, I discussed the importance of place and memory in a community, and argued that the city's endless cycles of destruction and reconstruction lead to a feeling of alienation and powerlessness about the individual's role in a neighborhood of community, and in some ways inhibit a sense of community entirely. These cycles of destruction and rebuilding are encouraged in large part by land ownership rules here that means that when you buy new property, you only securely own it for about 50 or 75 years (in other words, it is just held on a long-term lease), which means in turn that banks will only finance mortgages for relatively new properties, and that older ones tend to lose their value.

However, property remains expensive in Hong Kong because large tracts of land owned by the government (a lot of it having reverted to the government after some leases have expired) are hoarded and only limited supplies are brought out for auction from time to time, making both the government and the property developers rich; the system is not unlike the diamond business where diamond mines strictly control the amount of product that is allowed on the market at any given time even though the capacity to mine more is far greater.

Given Hong Kong's meteoric rise as an entrepot port and as a manufacturing and service center over the half-century, the public coffers are naturally very full. Although the government's coffers are ultimately by and for the public at large, as we all know, all institutions take on a life and logic of their own. Governments, given their unchallenged monopoly positions, most of all. The Government of Hong Kong knows that the lifeblood of its income is property taxes and land auctions, and will safeguard the value of its holdings and earnings at all costs.

Which is why we have neighborhoods like Kwun Tong, which, strangely enough, also features in today's Standard (the paper is running an intriguing story every Monday on urban degeneration and renewal in a different neighborhood - last week was Sham Shui Po). The area, once described as a 'boomtown' by the paper, is now an assortment of incredibly dilapidated, mostly vacant industrial buildings (since all our factories have moved to China), the unemployment rate is high, as is domestic violence and welfare recipients. The median income is correspondingly low.

Anyone looking at the area would immediately understand the problem - empty warehouses and factories built in the 1950s everywhere, with no hope of future tenants. Land values in this incredibly old, built up area are among the lowest in town. At this point, some transplanted New Yorker or Londoner would ask - why don't artists take over these places and convert them into lofts? Why can't they be gentrified?

The answer is because the government has strict rules regarding the uses of such properties. Residential uses for these buildings are not permitted. Given the substantial amount of industrial space that lies around the city, un-used, a conversion of a substantial amount of it to residential or regular commercial use may cause a downturn in property prices elsewhere. Revenues from conversion, moreover, would not really be earned by the government, as it would only receive the stamp duty on the very depressed prices for industrial property. Not only is the government trying to protect its own, by the influential property developer lobby would do anything to prevent such conversions from happening, unless they got to drive the process. The industrial area around Wong Chuk Hang, now slated for future development as a hotel district for Ocean Park Mark II is a case in point - here, the change of the industrial buildings to something else is approved because it is a top-down led government project in collaboration with the city's developers.

Why not just demolish these buildings in Kwun Tong and start again? Well, because it's not just the buildings that are considered industrial property and are not allowed for residential use - it's actually the land they're built upon that are zoned as industrial-use only. Bottom-up initiatives by private individuals are not permitted. In the meantime, districts like Kwun Tong, eyesores to all and an embarrassment to wealthy Hong Kong, are left to fester, and the government, with its neon halo (and its Central location), says that there is nothing they can do to fix such problems.

Nonsense. Change the land rules regarding the ownership of land. Allow people to own property permanently, so that they will take care of it, and really invest in the city, not only physically, but also from a civic perspective. Allow people within communities to decide how land should be used, instead of stubbornly sticking to land use categories that have become obsolete. Come on, what hope has Hong Kong of bringing back factories to the city when the industrial might of China is less than an hour away? Let the people, and the free market, decide what land should be used for. Let us move into the 21st century.


Anonymous said...

For land use problems, I tend to think the free market is not a panacea for the simple reason that the free market cannot take into account the public interest. If the free market is to take charge, only the poorest and new immigrants will live in these cheap industrial buildings where the living environment is probably not up to normal residential standards. There will not be enough protection for these residents against fire hazards and poor air ventilation, for example. If there is no land use regulations, some of these industrial buildings could quickly become slums.

You also need land use regulations to control the building form, such as the building height, otherwise someone will be free to build a skyscaper in an area where the surrounding buildings are only 15 storeys in height.

If I am correct, the government is trying to loosen up the land use zoning in Kwun Tong (or is it done already?). Offices seem to be allowed in these industrial buildings.

Dave and Stefan said...

I think that the free market would work better than the quagmire of regulations that exist today. I am not suggesting that there should be no zoning ordinances, but surely it should be made a lot easier for Hong Kong to remove dilapidated industrial buildings that serve no purpose other than to host offices that purport to qualify as industrial concerns.

The point about the industrial buildings is that if they could be actually torn down and made into residential complexes then a lot more people could live much closer to Hong Kong island than new developments going up in the northern New Territories.

The problem ultimately lies though, with it not being possible for anyone to buy land longer than 50 years today. Such regulations are outdated, and arguments that it removes speculators from the market and provides the community with money effectively turn the government into the biggest land speculator of all. That's not a business I want my government to be in.