Hong Kong's territory, which encompasses a mere 1,104 square kilometers, accommodates over seven million people. This makes the city more densely populated than many other metropolises such as Tokyo, London and New York.

Housing in the Chinese territory was ranked the most unaffordable in the world, according to the latest International Housing Affordability Study conducted by Demographia, comparing price-to-income ratios in 367 cities in nine different countries.

An array of reasons has contributed to this development, including a rise in the city's population and a lack of adequate supply of social housing.

Many attribute the high rents to the shortage of land. But analysts say the real problem is rather a lack of proper residential planning on the part of the city government, which owns most of the land.

Controlled land supply

"A lack of planning in advance led to this situation," says Yip Ngai Ming, a Hong Kong-based expert and professor on housing policy and urban studies.

Yip explained that creating flat land for the development of residential properties needs years, if not decades, of planning. But the Hong Kong government scrapped such planning in the midst of the Asian Financial Crisis in the late 1990s.

Moreover, the government is Hong Kong's sole land owner, and it earns a significant amount of its revenue by leasing out land to private developers. Critics say this is an incentive for the government to maintain high land prices.

They also argue that high land premiums lead to only few private developers willing to build affordable housing, as they offer only low marginal returns.

"The real estate market is currently dominated by a few big developers who have the power to withdraw housing supply when the market is not good. That makes house prices easy to rise but takes a very long time to fall," Yip told DW.

Ray Forrest, Chair Professor of Housing and Urban Studies at the City University of Hong Kong, shares a similar view. He says the scarcity of affordable housing in the Asian financial hub is "artificially maintained," and that priority is clearly given to building upscale, luxury apartments and shopping malls.

Housing speculation

Another reason compounding the effect is the growing speculation in the housing market, say experts. "Just as in London or Vancouver, surplus wealth is parked in Hong Kong residential real estate by both institutional and individual investors. Housing markets in these cities are not very different from art, vintage cars or rare wines - good investment prospects for the rich," Forrest added.

There has also been increased demand for Hong Kong real estate from mainland Chinese in recent years, particularly at times when the Chinese currency - the renminbi - is strong vis-à-vis the Hong Kong dollar.

"A strong renminbi makes it relatively cheaper for mainland Chinese to acquire property in Hong Kong, and that's why many of them invest in the city's property market," said Edward C.Y. Yiu, associate professor in the Department of Geography and Resource Management in the Chinese University of Hong Kong (CUHK).

He also noted that the increased business activity between Hong Kong and the mainland has also pushed the rents up - by requiring more staff quarters and housing units.

Implications

The problems associated with the shortage of affordable housing in Hong Kong have deep economic and social ramifications.

For instance, soaring rents have pushed low-income households to turn to the so-called “sub-divided flats” - a term that is used to describe the practice where one flat is partitioned into two or more self-contained housing units.

In these sub-divided flats, which offer inadequate living conditions, a person lives in an average area of about 47.8 square feet, and tenants pay around 40 percent of their income as rent, according to a study conducted by CUHK's Institute of Future Cities and a local concern group.

Furthermore, these flats are often dangerous as they do not comply with building and fire-safety regulations.

The increasingly unaffordable housing also impacts marriage and fertility decisions of young Hong Kongers. "Young people simply cannot buy apartments. Many of them resort to public rental housing, but since the waiting list for these is long, they have to defer decisions like marriage and child birth," professor Yip said.

The high rents have also aggravated the city's wealth inequality, analyst Yiu underlined. "While owners earn a fortune, tenants suffer from high rents." In addition, it widens intergenerational wealth inequality, he added. "When housing prices are extremely unaffordable, most buyers have to rely on a very long repayment period and mortgage. Some parents might be able to provide financial support for down payments. These children become home owners and they get richer when property price goes up. Thus, richer parents will have richer children."

Growing frustrations

It also affects the young people's living habits. For instance, a study jointly conducted by Yip and Forrest among 2,014 Hong Kongers aged between 18 and 35 concluded that almost 80 percent of them were living with their parents or other relatives, as they couldn't afford to live anywhere else, among other reasons.

"The housing problem deepens the frustrations that already exist among young people," added professor Yip. And due to the unaffordable private housing, queues for the public rental housing are getting longer and longer. It has also increased pressure on the government to craft an effective public housing policy to address the issue, CUHK professor Yiu said, cautioning that a failure to do so could intensify social and political unrest.