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Affordable Housing in Urban Centres Essential to Cities
30/9/2015
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barrysays
Last week I attended a Housing Forum hosted by the Urban Land Institute as a follow up to their Hong Kong Housing Workshop held in May this year. With real estate prices at record levels and purchase costs compared to peoples’ income making Hong Kong housing some of the most unaffordable in the world, both to buy or rent, it was no wonder the discussion focused on how to create more affordable housing for all income levels of the population. Housing affordability is an acute problem in many cities, not just Hong Kong and it is a multi-faceted issue that requires an integrated approach at many levels in order to adequately address the complexity.
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Most Germans prefer to rent for life rather than purchase property . /Photo - newsfortw.com
The German Factor
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Not everyone can own property and not everyone wants to own property. Germany for instance has some of the lowest property ownership levels in the developed world, [1] where about half of the population are living in rental accommodation, a level comparable with Hong Kong. [2] The difference for Germany is that it is mostly by choice that people do not purchase, where arguably, the tenant is "king" enjoying greater rights and afforded stronger protection from landlords. There exists the freedom to decorate properties in which tenants live (although they have to repaint walls to "neutral colours" before leaving) and so those who rent tend to treat the property as a real home, doing far more of the maintenance themselves than a tenant would in Hong Kong. On average, a tenant spends three to seven years in one property, much longer than in other countries. [3]
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The negative equity that follows property booms has reinforced Germans in their suspicion of rising house prices. They do not sit around a meal table discussing how much their home had risen in value over the past months. According to the Paris-based Organisation for Economic Co-operation and Development, house prices increased by an average of 83% between 1970 and 2008 in OECD countries. In Germany, they fell 17%. It’s also difficult to get mortgages, you need a large deposit and this is combined with a strong cultural reluctance towards risk and borrowing.
By contrast for Chinese, it seems that owning a home is one of the most important life aspirations. It represents security in a fragile existence and for young men there even exists the cultural pressure of needing to secure a property prior to taking a wife. Lack of affordable first homes potentially sees couples marrying later in life, becoming older parents, or perhaps not even marrying at all. More recently with spiralling prices, purchasing property as a financial investment appears essential to younger generations who otherwise see those with money getting richer through property speculation.
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In June 2015 the price to income ratio in Beijing is a whopping 34.7 years with a national average 22.3 years in China. Source - The Guardian
There are some discrepancies between data providers, but regardless, it is clear that now all of China’s big cities are very expensive for its citizens, especially in terms of property ownership. According to E-House China by the end of 2014, on average, it cost a family 21.7 years' income (without additional spending) to buy a 100 square meter house in Shenzhen, right next door to Hong Kong. [4] A quick look at Numbeo suggests that as of June 2015 the price to income ratio in Beijing is a whopping 34.7 years with a national average 22.3 years in China. Hong Kong, long time considered as ridiculously expensive and currently 3rd highest price-income ratio on the planet is 34.3 years. To put that into context, the USA continues to prop up the ladder with a national average of just 3.38 years. Rental yields in the US are some of the world’s best whereas the rental market in China is still some way behind rising house prices, making buy to rent unattractive for house owners and so leaving newly purchased property deliberately empty, sometimes for years.

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Source - financialsense.com
Income determines Affordability 

It can be argued that income, rather than either price or availability is the primary factor that determines housing affordability. [5] Therefore, understanding affordable housing challenges requires understanding trends and disparities in income and wealth. Housing is often the single biggest expenditure of low and middle income families.

Furthermore it seems clear to me that, regardless of whether for rental or purchase, housing needs to be not only affordable but also affordable in all locations, be it in the central city or edge of town. In many places nowadays, especially Hong Kong, it is neither affordable and especially not affordable in downtown areas. This sees a number of implications for society.

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Source - financialsense.com
Price Pressure

As older neighbourhoods are redeveloped, or gentrified, rental prices increase rapidly as landlords find new tenants willing to pay higher market rates for housing. Lower income families, many who have been living in such neighbourhoods all their lives are left without affordable rental units. Finding local accommodation matched to their income level means smaller spaces and poorer quality, culminating in those living at the bottom of the income bracket finding themselves in completely unacceptable private rental housing conditions such as subdivided apartments or caged spaces as found in Hong Kong. 
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Men sharing "cage homes" in a private apartment in Hong Kong. The rising property prices have made decent living conditions unaffordable for many Hong Kong residents. Photo: IC
Separation
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As an alternative, moving to cheaper districts has other implications, with the upheaval of a family causing trauma in terms of the ability of finding new schools or work or of the greater travel distances required to maintain established life. Living close to work, saves time, reduces costs and reduces impact on city services. Most importantly, people choose to maintain their social cohesion and are generally reticent to leave behind friends and life habits.
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Children play in Hubei Village in Luohu District. The shabby houses form a sharp contrast with the high-rises in the background. Photo: SD-Agencies
Who Cares? 

The availability of affordable housing in proximity of mass transit and linked to job distribution, has become severely imbalanced in this period of rapid regional urbanization and growing city density. Cities require a full range of workers, from bankers to street cleaners. Each needs local housing, preferably close to their work which is affordable to their income bracket. As street cleaners need to sweep the roads of the bankers, this implies both should live close together. 

Affordable housing shortages in inner cities might lead to the deprivation of vital workers like police officers, fire-fighters, teachers and nurses, all unable to find affordable accommodation near their place of work. Low-income renters are typically service workers whose jobs are also essential to the community. They include restaurant staff, retail clerks, cashiers, daycare workers, hairdressers, maintenance technicians, security guards as well as disabled and retired people living on Social Security income.
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Mixed income housing at East Village Austin Texas. Photo - Bercy Chen Studio
Changes afoot?
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The current situation, created by planners and endorsed by governments of the last millennium, generating segregated, income specific communities, located out of town where jobs are scarce and long distances of commuting are required, has run its course in the developed world. Not yet so in China and Hong Kong despite the problems associated with low income, edge of town, mass housing schemes being well documented.
 
Over the past decade, mixed-income housing, a relatively new concept in affordable housing development, has been rising in popularity across the US, with progressive cities providing inner city housing for lower-income and more affluent residents together. Local governments appear to prefer mixed-income housing to segregation of low-income residents in 100 % affordable projects because again, policy lessons have taught them that poverty concentration is not ideal.

The city of Austin’s S.M.A.R.T. (Safe, Mixed-income, Accessible, Reasonably priced, Transit-oriented) Housing Program offers developers a schedule of incentives based on the level of affordable housing provided. The city provides additional density and height variance, or floor/area ratio, to encourage provision of affordable housing and other community benefits, such as open space and streetscape. Developers are expected to set aside 25 % of units as affordable or pay an in-lieu fee into the city’s housing fund. [7]

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Public Rental Housing at Tin Shui Wai -Hong Kong. Photo - BWPI
Hong Kong continues to push quick fix, tired but trusted, mass public housing projects out of town, providing few local jobs whilst creating pressure on the existing transport system. At the same time it promotes new CBD areas such as Kwun Tong without allowing any residential areas to develop within them. Meanwhile in China, centuries old communities in urban villages are daily swept away under the pen of a young city planner, to be replaced by squeaky new international style development with sky-high rents and empty units. 

Even in a new city like Shenzhen, the vast majority of the population are recent migrants who flock first to the affordable rents of those very urban villages slated for demolition. According to analyst Wendell Cox, [8] domestic migration closely tracks housing affordability in the USA, where the major metropolitan markets with severe housing bubbles lost nearly 3.2 million domestic migrants from 2000 to 2009. In a time of mass rural-urban migration, the overall desirability of moving to a city must become influenced by its housing costs, particularly if you are a low paid worker. Without affordable housing, in diverse, mixed downtown neighbourhoods, where will all the workers live and who will do their jobs?

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Affordable
housing is a term being ever more frequently banded around. But why is it so important and what are the implications for society?
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Urban villages provide essential low cost rental housing for urban migrants. photo - Evan Homolka











​"In addition to the distress it causes families who cannot find a place to live, lack of affordable housing is considered by many urban planners to have negative effects on a community's overall health."
[6]

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These workers are often forced to live in suburbia commuting up to two hours each way to work. Lack of affordable housing can make low-cost labour scarcer (as workers travel longer distances) (Pollard and Stanley 2007).










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​The price to income ratio is the basic affordability measure for housing in a given area. It is generally the ratio of median house prices to median familial disposable incomes, expressed as a percentage or as years of income. 

​​The ownership ratio is the proportion of households who own their homes as opposed to renting. It tends to rise steadily with incomes. 

References:


[1] "Eurostat - Data Explorer - Distribution of population by tenure status, type of household and income group". Eurostat. 12 March 2015.

[2] "Table 005 : Statistics on Domestic Households". Census and Statistics Department (Hong Kong).

[3] Home sweet home is a rented property for many Germans.  Julia Kollewe and Larry Elliott the Guardian. 16 March 2011

[4] The Housing Price to Income Ratio is the ratio of housing price (assumed to be a 100 square metre residential house) and household annual income, and is used as a measure of whether housing prices are at a reasonable level that household income can support. E-House China's data only covers new residential housing, and excludes the second-hand housing market.

[5] Tilly, Chris (2 November 2005). "10". The Economic Environment of Housing: Income Inequality and Insecurity (PDF). Lowell, Massachusetts: Center for Industrial Competitiveness, University of Massachusetts.

[6] Bhatta, Basudeb (15 April 2010). Analysis of Urban Growth and Sprawl from Remote Sensing Data. Advances in Geographic Information Science. Springer. p. 42. ISBN 978-3-642-05298-9.

​[7] Patricia Kirk. Making Mixed-Income Housing Work. Urban Land magazine. June 19, 2012

[8] Wendell Cox is a Visiting Professor, Conservatoire National des Arts et Metiers, Paris. and  author of "War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life.”


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