HOUSING MARKET DYNAMICS UNDER A PEGGED EXCHANGE RATE – A STUDY OF HONG KONG

Ka Hung Yu,Eddie Chi Man Hui

doi:10.3846/ijspm.2018.441

Abstract

This study explores the major determinants of prices and rents of properties in the mass housing market and in the luxury housing market of Hong Kong. The findings show that property price (and rental) dynamics are primarily driven by demand factors, rather than by housing supply. While macroeconomic factors and the provision of subsidized homeownership, to varying degrees, influence housing prices and/or rents, it is the result of U.S. monetary policy which has directly (through changes in money supply) and indirectly (through the wealth effect from a bullish stock market fuelled by unconventional monetary policy such as Quantitative Easing (QE) triggered the current affordability issue. Some policy implications with reference to recent U.S. monetary policy developments as well as to the Linked Exchange Rate System between Hong Kong Dollar and U.S. Dollar are then discussed.

Highlights

The housing affordability problem has arguably been the most vigourously-debated social issue in Hong Kong
Property prices and rents have been soaring continuously since 2004 (Figures 1 and 2). It is shown through a comparison with five other Asian cities, namely Singapore, Seoul, Taipei, Tokyo, and Shanghai that Hong Kong’s property prices, similar to housing prices in Shanghai and in Taipei, have undergone much more rapid growth especially after the Financial Crisis of 2008, when compared with the property price trends in Singapore, Seoul, and Tokyo (Figure 3)
The key variables to be explored with the model are the residential property price index (PPI) and the residential property rental index (PRI) compiled by the Rating & Valuation Department (RVD)15

Summary

Introduction

The housing affordability problem has arguably been the most vigourously-debated social issue in Hong Kong. The surging property prices and rents, if anything, has made housing increasingly unaffordable for many Hong Kong residents, since their income growth has not been able to keep up with the upward price/rental movements. Property developers (for not supplying enough housing units) and the government Housing market dynamics under a pegged exchange rate – a study of Hong Kong

Objectives

Methods

Findings

Discussion

Conclusion