"Ah Ken, do you think I should enter the market now? I heard that the government plans to build hundreds of thousands of public housing units over the next ten years. Will private property prices drop as a result?" Last week, my friend Michael, who has been a middle-class professional for ten years, asked me this at a dinner gathering. He has a down payment of 2 million and originally planned to buy a home this year, but after seeing news about the government strongly promoting public housing supply, he began to hesitate.
I have been asked this question no less than twenty times in the past six months. Every time the government announces a new round of public housing construction targets, discussions in the property market forums will have the narrative that 'with a huge increase in public housing supply, private housing will collapse.' But is the reality really that simple? As a veteran who has been in the real estate industry for 15 years, today I will use data, policy analysis, and practical experience to give everyone an in-depth breakdown of the true relationship between public housing supply and the private housing market.
:::tip Core viewpoint An increase in public housing supply does not unilaterally mean a 'price drop' in the private housing market. The real impact depends on: the overlap of target customer groups, the structure of land supply, mortgage policy support, and the overall economic environment. :::
Core Concept Analysis: The Supply and Demand Logic of Public Housing and Private Property Markets
The Three Main Categories of Public Housing Supply and Their Market Positioning
To understand the impact of public housing on the private property market, one must first clarify what the government means by 'public housing.' According to the Long Term Housing Strategy, public housing is mainly divided into three categories:
Public Rental Housing (PRH): This is the most traditional type of public housing. Applicants must meet income and asset limits. Using 2024 data as an example, the income ceiling for a two-person household is $20,690 per month, and the asset limit is $445,000. These units are targeted at low-income families and have very little overlap with the private housing market.
Subsidized Sale Housing (Home Ownership Scheme, Green Form Subsidized Home Ownership): This has been a category vigorously promoted by the government in recent years. The sale price of Home Ownership Scheme flats is generally 50-70% of the market price, and the income limit for applicants is more relaxed than for public rental housing (around $66,000/month for a two-person household). The target group for these units is the 'sandwich class,' and they have a certain competitive relationship with entry-level private flats in the market (4-6 million).
Transitional Housing and 'Simplified Public Housing': This is a short-term measure, with rental periods generally ranging from 2 to 6 years, mainly to alleviate the housing pressure of families waiting for public housing. The impact on the private housing market is minimal.
:::highlight Key data According to the Housing Authority's 2023/24 data, the average waiting time for public housing is 5.3 years, and the oversubscription ratio for Home Ownership Scheme flats averages 40-50 times. This reflects a long-term severe shortage of public housing supply, and even if supply is significantly increased over the next ten years, it would only be "catching up" rather than "excess supply." :::
Analysis of the Demand Structure in the Private Housing Market
To assess the impact of public housing supply, it is necessary to first understand the sources of demand in the private housing market. According to my years of market observation and data from the Rating and Valuation Department, demand for private housing in Hong Kong mainly comes from four major customer groups:
First-time homebuyers (accounting for about 35-40% of new demand): This group earns 40,000-80,000 per month, has savings of 1-3 million, and aims for entry-level properties priced at 4-7 million. They significantly overlap with applicants for public housing and are the group most affected by public housing supply.
Home Upgraders (about 30-35%): People who already own property and move to a new home due to an increase in family members or to improve their living environment. This group is not affected by public housing supply, as their target is medium to large units valued above 8 million.
Investors (accounting for about 20-25%): This group includes both local and overseas investors, who primarily focus on rental returns and potential for asset appreciation. The impact of public housing supply on them is indirect—if an increase in public housing supply leads to a drop in rents, the attractiveness of investment will decrease.
Mainland and overseas buyers (accounting for about 5-10%): Mainly purchase luxury homes or properties in prime locations, entirely not overlapping with the public housing market.
From this structure, it can be seen that the public housing supply can truly 'divert' mainly first-time homebuyers. However, this group only accounts for 35-40% of the overall private housing demand, and it also depends on the actual quantity and quality of the Home Ownership Scheme supply.
The Myth of the 'Zero-Sum Game' in Land Supply
Many people are worried that the government's strong promotion of public housing will 'take away' land supply from private housing. This concern is not completely unreasonable, but the actual situation is more complicated than imagined.
According to the "Hong Kong 2030+" plan, future land supply will mainly come from three sources: new development areas (such as Hung Shui Kiu and Kwu Tung North), reclamation (such as the Kau Yi Chau artificial island), and the redevelopment of brownfield and industrial sites. Among these new land areas, the government's planned ratio is approximately "public to private 7:3".
But here is a key point: the ‘7:3 public-private split’ of new land does not equal the ‘7:3 public-private split’ of overall housing supply. This is because the private housing market still has a large amount of supply coming from urban redevelopment, old building demolition and reconstruction, industrial building conversion, and so on, which are not included in the government’s ‘land supply’ statistics.
According to my estimates, if all sources are taken into account, the actual supply of new units in the next ten years will have a public-private ratio of approximately '6:4' to '5.5:4.5', rather than the apparent '7:3'. This means that although the proportion of private housing supply will decrease, the absolute number may not decline significantly.
:::warning Experts remind Don't be intimidated by the 'public-private 7:3' figures. What truly affects the private housing market is the 'actual completion volume' rather than the 'planned ratio.' Over the past decade, the government's public housing construction targets have been repeatedly 'missed,' with the actual completion volume often being only 60-70% of the target. :::
Practical Case Sharing: What Does Historical Data Tell Us?
Case 1: Insights from the '85,000' Policy of 2000-2005
To understand the impact of public housing supply on the private housing market, the best reference is history. In 1997, then Chief Executive Tung Chee-hwa proposed the '85,000 units' housing target, planning to supply 85,000 units annually (combined public and private). This policy did significantly increase supply between 1998 and 2002, but what was the result?
Response of the Private Housing Market: From 1997 to 2003, private housing prices fell by about 70% in total. Many people attributed this to 'oversupply,' but in reality, the main causes of the housing market crash were macroeconomic factors such as the Asian financial crisis, soaring unemployment rates (reaching a peak of 8.5%), and negative equity issues (peaking at 100,000 cases).
The Actual Impact of Public Housing: During this period, the supply of Home Ownership Scheme (HOS) flats did indeed increase significantly (around 20,000 units were launched on average each year from 1998 to 2002), causing a noticeable diversion effect on entry-level private housing. However, it is worth noting that at the time, HOS flats were offered at a 30% discount, and the application requirements were relatively flexible, making them far more attractive than today’s HOS flats.
Insider's View: The lesson from the '850,000 period' is that an increase in public housing supply can indeed put pressure on entry-level private apartments, but the prerequisite is that 'economic deterioration + significant supply increase + high-discount Home Ownership Scheme flats' occur simultaneously. Simply increasing the supply of public housing is not enough to affect the overall property market.
Case 2: The Wave of Home Ownership Scheme Redevelopment from 2016 to 2020
2014 Years later, the government relaunched the Home Ownership Scheme and gradually increased supply. Between 2016 and 2020, an average of about 4,000-7,000 HOS units were launched each year. How did the property market perform during this period?
Reaction of the Private Housing Market: From 2016 to 2019, private housing prices rose by about 40% in total, completely unaffected by the increase in the supply of Home Ownership Scheme flats. It was not until the second half of 2019 that the property market adjusted due to social events and the pandemic.
The Diversion Effect of Home Ownership Scheme (HOS): Although the supply of HOS flats has increased, the actual diversion effect is limited because the discount rate is only 50-60% of the market price (lower than during the “HK$85,000” period), and the application criteria have tightened. According to my observation, around 20,000-30,000 families apply for HOS flats each year, but only 4,000-7,000 families ultimately succeed in purchasing one, with the rest of the “unsuccessful applicants” eventually returning to the private housing market.
Data Support: According to the data from the Rating and Valuation Department, between 2016 and 2019, the transaction volume of private flats priced between 4 to 6 million did not decline but increased, averaging about 25,000 to 30,000 transactions per year, about 20% higher than the period from 2012 to 2015. This reflects that the increase in Home Ownership Scheme supply has not significantly weakened the demand for entry-level private flats.
:::success Practical Insights Historical data shows that as long as the economic environment is stable and the job market is healthy, the increase in public housing supply has a 'localized' rather than 'comprehensive' impact on the private housing market. The ones truly affected are entry-level apartments priced between 4 to 6 million, while mid-to-high-end apartments priced above 8 million are almost unaffected. :::
Case 3: Singapore's 'HDB' Experience
Many people like to compare Singapore's "HDB" system, believing that Hong Kong should learn from Singapore and vigorously promote public housing. But the reality is that Singapore's HDB system is fundamentally different from Hong Kong's public housing.
Characteristics of Singapore HDB Flats: HDB flats have a coverage rate of up to 80%, and almost all Singaporeans live in HDB flats. HDB flats can be freely bought and sold in the second-hand market (though there are resale restrictions), and the prices are about 40-50% of private apartments. Under this system, the private housing market mainly serves foreigners and high-income groups.
The Situation in Hong Kong: The public housing coverage rate in Hong Kong is about 50% (public rental housing 30% + Home Ownership Scheme 20%), and the secondary market for Home Ownership Scheme flats has lower liquidity (land premium needs to be paid). This means that Hong Kong's private housing market is still the 'mainstream market', rather than a 'niche market'.
Insight: Singapore's experience tells us that if the government really wants to significantly increase the supply of public housing to a 70-80% coverage rate, the private housing market would indeed be marginalized. But with Hong Kong's current policy direction, the coverage rate of public housing will at most rise to 60%, and the private housing market will still be the 'mainstream'.
Precautions and Risks: A Guide for Investors and First-Time Buyers to Avoid Pitfalls
Common Misconception 1: 'A large increase in public housing supply = private housing will definitely fall'
This is the most common misconception. Many people see the government's announcement of 'building 300,000 public housing units in the next ten years' and think that private housing will collapse. But in fact, there are three flaws in this logic:
Flaw 1: Housing construction targets ≠ actual completions. Over the past decade, the government's public housing construction targets have been achieved at an average rate of only 60-70%. Land reclamation, planning approval, judicial reviews, and other issues can all slow down the construction progress.
Flaw 2: Limited overlap between public housing and private housing clientele. As mentioned earlier, the only public housing that truly competes with private housing is the Home Ownership Scheme (HOS), which accounts for only about 30-40% of the overall public housing supply.
Flaw Three: Ignoring changes in demand. The number of households in Hong Kong continues to increase (about 20,000 households per year). Coupled with factors such as the demolition of old buildings and rising divorce rates, the demand for housing is actually growing.
:::warning Guide to Avoiding Pitfalls Don't be intimidated by the government's 'housing construction target' numbers. What really matters is the 'actual completion volume' and the 'proportion of Home Ownership Scheme supply.' If the annual supply of HOS units is less than 10,000, the diversion effect on entry-level private housing is actually very limited. :::
Common Misconception 2: 'All private housing will be affected'
Another common misconception is the belief that an increase in public housing supply will cause "all private properties" to decline. In reality, private properties at different price points and in different locations are affected to very different degrees.
Most Affected Property Types:
- Entry-level properties priced at 4-6 million (especially small units in the New Territories)
- A housing estate in a remote location with average facilities
- Properties with older buildings and poor management
Property types that are almost unaffected:
- Medium to large units over 8 million
- Prime urban locations (such as East Hong Kong Island, Kowloon Station, Taikoo Shing, etc.)
- Prestigious School Network Property
- Luxury homes and condominium luxury homes
Professional Advice: If you are an investor, you should avoid entry-level properties that directly compete with Home Ownership Scheme flats, and instead focus on the 'home-upgrading market' (HK$8-15 million) or 'rental properties' (properties with stable rental returns). If you are a first-time buyer, on the other hand, you can take advantage of high market anxiety to look for bargain properties from sellers who are in a hurry to sell.
Common Misconception #3: 'Wait for a surge in public housing supply before entering the market'
Many prospective buyers hold the mindset of 'waiting for a significant increase in public housing supply and a drop in private property prices before entering the market.' This strategy sounds reasonable, but in reality, there are two risks:
Risk One: Opportunity Cost During the Waiting Period. Suppose you currently have an initial payment of 2 million and plan to wait two years for property prices to drop by 10% before entering the market. But if property prices rise by 10% instead of falling during these two years, not only will you not save money, you will also have to pay 10% more for the down payment. More importantly, during these two years, you will continue to pay rent. Assuming the monthly rent is $15,000, over two years that amounts to $360,000.
Risk 2: The Risk of Tightening Mortgage Policies. If the property market really declines due to a significant increase in public housing supply, the government is likely to relax mortgage policies to support the market (for example, by raising the mortgage-to-value ratio limit or lowering stress test requirements). However, if the property market continues to thrive, the government may instead tighten mortgage policies. In other words, the strategy of "waiting for a market drop" could make you miss out on the best mortgage conditions.
:::tip Experts suggest Instead of 'waiting for the market to drop,' it's better to 'wait for the right opportunity.' Short-term fluctuations in the property market are hard to predict, but if you find a unit you like, the price is reasonable, and the mortgage terms are ideal, you should decisively enter the market. Remember, buying a property is 'for living in,' not 'for speculation.' As long as the mortgage payment is cheaper than rent and affordable, there's no need to worry too much about short-term property price fluctuations. :::
Risk Warning: Policy variables remain the greatest uncertainty
Although I analyzed the impact of public housing supply on the private housing market earlier, it must be emphasized that policy variables remain the biggest uncertain factor. The following policy changes could potentially overturn the current market landscape:
Significant Relaxation of the Home Ownership Scheme Policy: If the government raises the HOS discount to 30-40% (as in the '85,000' era) and significantly relaxes the application criteria, the impact on entry-level private housing will far exceed expectations.
Mortgage policy suddenly tightens: If the Monetary Authority suddenly tightens mortgage ratios or stress tests, private housing demand will shrink significantly, even if the supply of public housing remains unchanged.
Deteriorating Economic Environment: If Hong Kong's economy falls into a recession and unemployment rates soar, even if the supply of public housing decreases, the private housing market will also be severely hit.
Significant Increase in Land Supply: If large-scale reclamation projects, such as the Artificial Island in Kau Yi Chau, are completed ahead of schedule, the sudden surge in land supply could alter the current supply-demand balance.
Summary: Rationally Viewing the Market Impact of Public Housing Supply
Returning to the question from my friend Michael at the beginning of the article: 'With the government strongly promoting public housing, should I enter the market or wait and see?'
After the in-depth analysis above, my answer is: an increase in public housing supply has a 'structural' rather than a 'comprehensive' impact on the private housing market. If your target is entry-level properties in the 4–6 million range, you do need to pay attention to changes in subsidized housing supply; but if your target is mid to large units above 8 million, or properties in prime urban locations, the impact of public housing supply is minimal.
More importantly, the decision to buy a property should not be based solely on the factor of 'supply'. Your financial situation, family needs, career development, mortgage terms, and market timing are all equally important considerations. Instead of getting stuck on the question of 'whether public housing will impact the property market,' which cannot be accurately predicted, it is better to focus on 'finding a property that suits you' and 'making a good financial plan.'
Remember, the long-term trend of the housing market depends on multiple factors such as economic fundamentals, population structure, and land supply. The supply of public housing is just one variable, and it is a 'slow-moving variable'—its impact will gradually become evident over the next 5-10 years, rather than changing the market pattern overnight.
:::success Confidence for the reader No matter how the supply of public housing changes, Hong Kong's private housing market will still be a "demand exceeds supply" market. As long as you choose the right property, plan your finances well, and hold it for the long term, short-term fluctuations in the property market will not affect your homeownership goals. :::
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