Prison-cell flats in Hong Kong show the limits of home-supply policy

Sometime later this year, Hong Kongers may be able to pay for the privilege of living in apartments so small they’re comparable to prison cells.

Then, a local developer is due to start signing tenants for a project in the Happy Valley district where most flats could have a “usable floor area” of about 5.7 square meters, according to a pre-construction filing with the Buildings Department.

That’s slightly less space than Stanley Prison, a 30-minute drive across the Hong Kong island, affords its inmates.

Cramped living spaces in the world’s major cities are nothing new. But few places have reached such extremes as Hong Kong, where housing affordability has become a defining political issue two decades after its handover to China. Among the array of initiatives the government has unleashed to cool prices, a key one is boosting the supply of new homes. That’s happening to some extent, although not in the way officials might have hoped.

As soaring prices put homes out of reach for most buyers, developers have been chopping new projects into ever-smaller units – the tiniest category, below 18.5 square metres, is commonly referred to as “nano flats.” Demand has been overwhelming, with projects often selling out in as little as hours.

‘Hilariously Absurd’

The overall impact has been not so much cheaper housing as skyrocketing prices and rising profits for Hong Kong’s developers, whose shares trade close to all-time highs.

“This situation is really hilariously absurd,” independent lawmaker Paul Tse said in Hong Kong’s legislature in December during a housing policy debate.

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Tse lambasted the administration of outgoing Chief Executive Leung Chun-ying for “bragging” about promoting new supply when “the reality is that property prices continue to rise, but the size of flats continues to shrink.”

Earlier this month, Leung touted an estimated 96,000 private housing units that will come to market over the next three to four years.

Chances are many of those will be tiny: The share of new apartments in Hong Kong measuring below 40 square metres jumped from 5 per cent in 2010 to 27 per cent in 2016, and is forecast by the government to hit 43 per cent next year.

Snail Homes

Housing crunches tend to generate their own vernacular. In the U.S,”tiny homes” evoke images of minimalist living. In Chinese slang, people who live in the smallest apartments in Hong Kong are in “snail homes” and those who can’t afford to buy are “snails without shells.”

Some experts have started raising concerns about the psychological toll of living small. Susan Saegert, a professor of environmental psychology at City University of New York, said children who grow up in tiny homes tend to have more difficulty focusing in school and score lower on standardised tests, while lack of space impairs adults’ ability to cope with stress. Hong Kong is “pushing things to the extreme,” she said.

Cramped living conditions are certainly nothing new to Hong Kong, home to some of the most densely populated areas on Earth. Newspaper headlines have long featured the “coffin cubicles” of the poorest citizens – small spaces within subdivided dwellings — and the often woeful conditions for women from Indonesia and the Philippines who work as domestic helpers.

But nowadays, even white-collar professionals who earn much more than your average worker are choosing micro living.

‘Quite Ridiculous’

For Wu Tung, a 41-year-old marketing manager, a 14.8 square metre flat in North Point has been home for more than three years at a monthly rent of about HK$7,300 ($1232). He grew up in a Hong Kong home that was bigger than 92 square metres, and later in a three-story house in Canada that measured about 278 square metres.

Wu, who makes more than double Hong Kong’s median income, is proud of how efficient his place is, with a double bed, a kitchen, his electric piano, and a projector instead of a TV.

At the same time, he says the fact that such cramped living has become the norm for many people is “quite ridiculous, isn’t it? Just because you’ve been in Hong Kong for so long, you forget how ridiculous it is.”

On the other side of the equation, the micro-flat boom has been good for Hong Kong’s property developers and their billionaire owners. Prices of apartments smaller than 40 square meters have more than doubled since late 2010 and keep hitting new records, while the cost of homes 160 square meters and above still hovers below a 2013 peak, according to government data.

With the government imposing limits on bank mortgages, developers have capitalised on Hong Kongers’ desperation to get on the property ladder by offering additional loans. So people who don’t have enough money for a downpayment on an existing home are instead being forced to buy a newly built flat — and in many cases, a tiny one.

Those buyers are the most at risk should the market turn, said Joseph Tsang, a managing director at Jones Lang LaSalle.

“If the bubble in the primary market bursts, they should know who created it: not others, it was the government,” Tsang said.

Fortunes Swell

As prospective buyers throng new projects, Cheung Kong Property Holdings Ltd. and K&K Property are among developers that have raised prices, the South China Morning Post reported this month. Billionaire Li Ka-shing’s Cheung Kong Property said last week it had already topped its full-year sales target of HK$25 billion.

Li and other real estate tycoons have prospered personally. The fortunes of Hong Kong’s 10 richest people, nine of whom are involved in the property business, have jumped by a combined $22 billion this year.

Meanwhile, as affordability becomes an ever more contentious issue and rising costs drive expatriates away, politicians and residents are left debating a vexing question: Does a rising supply of homes, albeit tiny ones with stratospheric per-square foot prices, constitute a housing policy victory?

“Supply has increased, but size is smaller,” said Edward Yiu Chung-Yim, who represents architects, surveyors and planners in the city’s legislature. “Is that a victory? I would say no.”

This story was first published by Bloomberg