14 July, 2014

Public vs Private Land Ownership: The Case for More Affordable, More Abundant, and More Efficient Land Use in Hong Kong

One of my ongoing personal frustrations about Hong Kong has been in regards to my inability to start my own property development firm here, despite the fact that this industry is highly lucrative in the territory.  Yes, I too quickly figured out where the best money is!  Over time I have learned the reasons for this situation, as is perhaps most prominently detailed in the now famous book titled "Land and the Ruling Class in Hong Kong" written by a local industry expert Alice Poon and also in "Uneasy Partners: The Conflict Between Public Interest and Private Profit in Hong Kong" by Leo Goodstadt.  A short review of these two books with insights as to the inner workings of the property development cartel can be read here.

What, in my view, many people in Hong Kong continually and erroneously identify as the solution to the territory's high property prices, is the need for government to make more land available for development.  However, this has not been a successful strategy thus far, as the property cartel is keeping a firm grip over the land procurement in Hong Kong.  Government works in collusion with the cartel, so that land lease is done in such ways so that it benefits the cartel and ensures that in most situations no other players can enter the game.  This kind of arrangement of government in bed with big business is clearly detailed the above mentioned books.  It is also summed up in this 2013 post.  However, in my view, it too still fails to spell out the right solution, by concluding that the Hong Kong government should end the collusion with developers and reduce high land price with which it jacks up its revenues.  Why is this solution wrong?  It is wrong because so long as the politicians have the power to sell favors to the highest bidders it is destined to keep happening, and no amount of legislation will be able to prevent it.

In my earlier post, I have already written about the right solution to this problem, through addressing a related problem of ever growing waiting lines for subsidized public housing, despite scores of empty public housing units being available and offered for habitation, all allegedly due to existence of choice (three apartment choices).

The following segment of my recent video interview with professor David Friedman during his recent visit to Hong Kong is an expert's confirmation that what causes Hong Kong's high property prices cannot be remedied by tinkering with symptoms, but only by eliminating the cause.

Son of famous economists Milton Friedman and Rose Director and famous in his own right as a renowned libertarian thinker, David Friedman is also an author, economist, physicist, and legal scholar, and he is currently a professor of law at university of Santa Clara.  He has written several books, most notable of which is “The Machinery of Freedom” and which talks about his version of free society, the so-called consequentialist anarcho-capitalism.

Upon my question of possible effects of private land ownership in Hong Kong, professor Friedman responded:

"It would be less scarce, because you would have multiple owners, and there would first be an incentive to make more land – which has happened in Hong Kong, of course. Noticeable parts of Hong Kong are land, where they filled in the water. And in addition to that if you add people competing for land, you would tend to get more efficient uses of land, and so forth. I don't know much about Hong Kong, but you were telling me earlier that in practice almost all the development is done by a small number of firms that worked together and have an effective cartel over the industry. And if that's right, it's unlikely that they are using the land in its most efficient fashion."

Watch the video segment below or see it on YouTube here.


So the remedy to Hong Kong's high property prices lays in private land ownership.  To paraphrase the words of Milton Friedman, government should only own the land its buildings are standing on, nothing else.  If all land in Hong Kong is private, then there would be no obstacles for all sorts of property development firms to arise and compete with their products and services, delivering abundance of best housing at most affordable and most competitive prices that a free market could offer.

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