February 20, 2025 · 《Ming Pao》
Hong Kong’s economy is experiencing its longest contraction on record. Over the past six years, real GDP has cumulatively fallen by 0.2%, while global GDP grew 17.4% and developed economies grew 9.7% over the same period. Compared with the other 41 developed economies, Hong Kong’s GDP growth ranks second to last. The length of this recession has even broken records, surpassing the turbulence of the 1960s riots, the 1970s oil crisis, the 1980s Hong Kong sovereignty negotiations, the 1990s Asian financial crisis, and the SARS epidemic of the millennium.
According to government data, over the past six years all industries in Hong Kong have contracted except financial services. The value added of tourism, trade and logistics, and professional services and other producer services in 2023 fell by 37.5%, 4%, and 2% respectively compared with 2018; only financial services saw growth, with value added rising 35.9% from 2018.
At the same time, Hong Kong’s non-property private investment has plunged sharply, signalling that the city’s future economic growth rate is likely to decline over the long term. Investment in machinery, equipment, and intellectual property as a share of total output fell from 13.6% in 2012 to a historic low of just 4.5% in 2023. Research by professors J. Bradford DeLong and Lawrence H. Summers has shown that low equipment investment typically signals weak economic growth ahead.
On top of this, Hong Kong’s population ageing will deteriorate rapidly over the next 20 years, causing the city’s economic vitality to contract further. According to projections by the Census and Statistics Department, by 2066 every economically active resident will need to support 2.2 dependants. By then, government welfare spending will surge, young people will need to support more dependants, and the labour force will become more scarce — driving up business costs and inevitably slowing economic growth.
1. Why Hong Kong’s Economy Keeps Sliding
In the face of this serious economic illness, Hong Kong can no longer adopt an attitude of ‘treating the head when the head aches, treating the foot when the foot aches.’ Instead, the authorities must trace the root causes, understand how economic strategy has gone wrong, and prescribe the right medicine for sweeping reform.
So what has gone wrong with Hong Kong’s current economic strategy? In 2002, facing the blow dealt to the local economy by the Asian financial crisis, the government — in a bid to restore investor confidence — rolled out nine rescue measures through then-Secretary for Housing Michael Suen, including halting the sale of public rental housing, suspending the sale and construction of Home Ownership Scheme (HOS) flats, and cancelling land auctions. From the perspective of urban economics, this policy was the most far-reaching economic-strategy decision in the post-handover era.
Following this ‘Suen Nine Measures’ turning point, Hong Kong’s housing supply collapsed from an annual average of more than 60,000 units between 1997 and 2002 to just 20,000–30,000 units per year between 2004 and 2013 — and even today has yet to approach pre-2003 levels. Hong Kong’s rents have climbed steadily ever since: the private domestic rental index surged from 91.6 in 2006 to 181.1 in 2023. Propelled by the low-interest environment, the private domestic price index leapt from 92.7 in 2006 to 337.4 in 2023. This relentless rise in rents is a tell-tale sign of chronic housing undersupply.
Although housing undersupply benefits investors in the short term, it has wrought serious damage on Hong Kong’s long-term economic development — including the loss of young talent, labour shortages, declining economic competitiveness, falling fertility, population ageing, and rising public dependence on government housing subsidies. In the end, it has sacrificed Hong Kong’s long-term economic growth and undermined social stability.
The authors’ analysis will be split into two parts: this part will examine how the chronic housing undersupply that took hold after 2002 has affected the economy and society, while the next part will analyse how housing policy should be reformed to reverse the downward trend in economic growth.
2. (1) Depriving the Next Generation of Economic Opportunity
The impact of soaring rents and prices is unevenly distributed. Roughly half of Hong Kong’s residents are property owners and have benefited handsomely from the surge in prices. Another 30% are public rental housing tenants, who are not particularly affected by the steep rise in private rents. Private-rental tenants, by contrast, are the harshest victims of the rental and price spike. According to the population census, between 2006 and 2016, the share of income spent on housing by private-rental tenants in every income bracket rose — the average climbed from 27.1% to 33.5%. At the same time, the flats tenants live in have grown smaller and smaller, and many residents have no choice but to live in cramped subdivided flats.
The younger generation is the backbone of Hong Kong’s future productive capacity, but as they generally are neither property owners nor public rental tenants, they have borne the brunt of the rental and price surge. According to the 2021 Population Census, the home-ownership rate in Hong Kong stood at 48.6% — 3.5 percentage points lower than a decade earlier — indicating that young people not only struggle to pay rent but also find it hard to purchase a home. The share of young property owners under the age of 35 plunged from 22.1% in 1997 to just 7.6% in 2019.
The rental and price surge has also made it harder for Hong Kong people to start businesses. Research by University of Hong Kong professor Alberto Moel shows that Hong Kong’s start-ups lack early- and mid-stage venture capital; successful companies abroad can survive for a decade or more without making a profit, but Hong Kong firms find it hard to weather this ‘valley of death’. The cost of doing business in Hong Kong is prohibitively high, with steep rents and labour costs. Innovation and technology talent is overwhelmingly young, but Hong Kong’s young people are increasingly unwilling to develop their careers locally because of the high cost of living. Cost constraints likewise make it difficult to attract high-end talent from outside Hong Kong.
The rental and price surge has also dragged down Hong Kong’s fertility rate. In modern society, men and women tend to have high expectations of a partner, and, shaped by traditional Chinese values, ‘flatless’ young people find it hard to marry and have children. Government data show that from 2011 to 2021, the share of young adults living with their parents climbed steadily: among those aged 30–39, the share rose from 35.6% to 43.5%; among those aged 20–29, the share hit a new high of over 80%. Over the same period, in the share of men and women who have never married, the 30–34 age group rose from 43% to 51.6%, and the 35–39 age group rose from 25.2% to 29% — meaning that nearly 30% of the population remains unmarried at 39. The number of babies born to first-time mothers aged 30–39 over the same period fell from 36,000 to 23,000. The housing shortage is undoubtedly one of the main reasons hindering young people from starting families.
The rental and price surge has further encouraged young people to ‘lie flat’. Research by the Employees Retraining Board shows that young people who are neither in employment nor in education have very low motivation to work or study: over 98% do not plan to look for work in the next few years; over 38% say they feel no financial pressure, and more than 36% have no desire at all to enter the workforce. A further 90%+ do not plan to pursue further studies within a year — clear evidence that some young people have ‘lain flat’. A separate study by the Hong Kong Young Women’s Christian Association finds that over 27% of secondary-school students consider themselves to have ‘laid flat’, over 47% agree with renting rather than buying, and over 23% see no hope of upward mobility. One key reason young people ‘lie flat’ is that they feel no financial pressure yet see no prospect of moving up the ladder or owning a home — so some have no intention of working or studying at all.
Heavier housing burdens on young people damage their economic prospects and their ability to start families, which inevitably fuels social tensions. This has compounded the political unrest of 2012–2019, giving rise to a ‘lost generation’ in Hong Kong. Moreover, local young people are the future backbone of society and cannot be replaced by imported labour or new immigrants. If government policy continues to harm local young people over the long term — driving talent away or pushing them to ‘lie flat’ — Hong Kong’s long-term economic growth will inevitably suffer.
3. (2) Expensive Property Prices Are a Shortcoming in Urban Competitiveness
In recent years, a number of well-known economists, drawing on econometric studies of US cities, have found that rising living costs restrict the flow of labour from low-productivity cities to high-productivity ones. This spatial mismatch of population reduces economic efficiency, leaving high-productivity cities short of labour, indirectly driving up business costs and significantly slowing economic growth.
Hong Kong’s situation resembles that of high-productivity US cities, with expensive property prices and rents acting as a competitiveness weakness. According to consulting firm Mercer’s 2024 Cost of Living City Ranking, Hong Kong has once again retained its position as the most expensive city in the world for expatriate employees, with high housing costs a key factor. By contrast, Hong Kong’s main Asian competitors Singapore, Shanghai, and Shenzhen rank 2nd, 23rd, and 34th respectively. Separately, data from the Urban Land Institute show that average rents per square metre in Singapore are only 86% of Hong Kong’s; the comparable figures for Beijing, Shanghai, Shenzhen, and Guangzhou are just 52%, 44%, 39%, and 27% respectively.
Hong Kong’s population ageing is now causing severe labour and talent shortages. According to manpower projections by the Labour and Welfare Bureau, by 2028 the manpower gap in Hong Kong’s ‘Eight Centres’ and nine key industries is expected to reach 180,000, which will need to be filled by talent from outside. Yet the high cost of housing remains the biggest obstacle to talent coming to Hong Kong.
4. (3) The Public Has Become Increasingly Dependent on Government Subsidies
Supply-starved housing policy has not only left many residents unable to buy a home, but has also driven up public dependence on public-housing subsidies. Over the past 20 years, although average per-capita income has risen, the number of public rental housing tenants and applicants has not fallen but has instead increased. Public rental housing population was about 2.48 million in 1992, dropped to about 2.08 million in 2002, but then rose back to over 2.2 million in 2018. The waiting-list picture is broadly similar: from a peak of 176,000 in 1992, it fell to 92,000 in 2002, before rebounding to over 250,000 in 2018.
At the same time, the income and asset limits for public rental housing indirectly encourage citizens to ‘lie flat’ — many reduce their work effort during the years they spend on the waiting list. Even more strikingly, the share of young public-housing applicants with tertiary education has been rising: among those under 30 with post-secondary or higher qualifications, the proportion climbed from around 10% in 2004 to 67% in 2014 and 79% in 2024. This means a large number of highly educated young people plan to rely on government subsidies, and that the labour market is losing many young, highly educated, highly productive workers.
Hong Kong’s current housing policy is plainly self-contradictory. On the one hand, the government allows HOS and private housing to remain in chronic undersupply, driving up private rents and ultimately pushing large numbers of residents to depend on public-housing subsidies. On the other hand, to shorten public-housing wait times, the government keeps building more public rental housing — falling into a vicious cycle that greatly increases the fiscal burden. At the same time that the waiting list has surged, well-off tenant policies have long been too loose: well-off tenants are unwilling to surrender their flats, which not only disrupts the normal operation of the housing market but is also unjust to the more than 200,000 people living in subdivided flats.
In addition, public rental housing does not turn over in the market, causing a misallocation of labour resources. Research by professors Hon-kwong Lui and Wing-chuen Woo shows that, because Hong Kong’s public rental tenants enjoy low rents, they generally do not move even when their home is far from their workplace. This reduces the efficiency of matching the labour force to the job market, increases commuting costs and public-transport demand, and holds back the city’s overall economic development.
Government finances are now deteriorating, with deficits approaching HK$100 billion. The share of public expenditure on housing in overall government operating expenditure is rising — from HK$21.3 billion in 2013 (4.6% of total spending) to nearly HK$45 billion in 2023 (5.8%). The government estimates that an additional 300,000 public rental housing units, housing 11% of Hong Kong’s population, will be needed to meet public rental housing demand over the next 10 years. If Hong Kong’s housing policy continues to focus solely on building public rental housing while ignoring issues such as young people’s home ownership, labour shortages, population ageing, and talent loss, the economy will inevitably slide further — and government finances will only worsen.
5. Housing Reform Is Key to Economic Recovery
The above analysis shows that housing policy is closely intertwined with demographics, labour, innovation, and economic growth. A sound housing policy can not only boost residents’ well-being and lift fertility, but also enhance the motivation and creativity of local talent, attract new talent, and lower business costs so as to draw foreign-invested enterprises to put down roots — providing the momentum for long-term economic growth.
Unfortunately, with housing in chronic undersupply over the past 20 years and rents and prices soaring, an entire generation of young people has been unable to buy a home or move up the social ladder. This situation has hindered Hong Kong’s ability to retain and attract talent, depressed fertility, accelerated population ageing, and dampened private investors’ interest in developing new industries locally. At the same time, the housing problem has ignited deep social tensions, intensified public dependence on government-subsidised housing, kept public rental waiting times persistently high, and pushed large numbers of people to ‘lie flat’ in pursuit of government subsidies — leaving the economic and social vitality of the city in ever-worsening shape.
Current discussions of economic policy in Hong Kong remain over-concerned with the risk of housing ‘oversupply’ and overlook the negative impact of housing undersupply on the economy as a whole and on the next generation. If, after a decade of turmoil, society still fails to recognise how important housing policy is to economic prosperity and social stability, and lacks the awareness, courage, and determination to push through housing reform, Hong Kong’s economic and social development will never return to the right track — and the authors can only feel pessimistic about Hong Kong’s future economic growth.
To reverse Hong Kong’s long-term economic recession at this juncture, the city should build consensus as quickly as possible and press ahead with sweeping housing reform, creating the policy conditions needed for economic prosperity. Exactly how housing policy should change involves many factors that need to be weighed; the authors will analyse this in detail in the next part.
(Translation supported by AI)
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- Hong Kong’s Economy Faces Long-term Recession — Housing Policy Needs Comprehensive Reform (Part 2) by Michael Wong, Alex Ngau and Yun-wing Sung
