Abstract
The specificity of Hong Kong’s gentrification trajectory reflects its urban morphology, political institutions, and social and economic structure. While continuously renewing itself economically, much of the city’s inner urban area building stock is old and functionally obsolete, whilst nevertheless providing affordable, well-located housing for lower-income and disadvantaged groups and small-scale commercial clusters. Constrained redevelopment is not the result of economic decline but rather of formidable frictions that make land assembly and vacant possession of buildings difficult. Hong Kong’s executive-led, quasi democratic government articulates with the public ownership of land and its management through the leasehold system, and leads inner-city redevelopment through the Urban Renewal Authority (URA) supported by various institutional and statutory arrangements. (Re)development is favoured because it generates significant state revenue from physical and economic intensification of sites. Although gentrification is not an agenda of the URA, it is a significant outcome of its redevelopment activities.
Introduction
A key theme of the gentrification debate is the displacement of at least a significant number of original residents by a group of very different residents, socially, economically and demographically. Many iconic cases of gentrification are private-sector led; however the state has long been intensively involved in redevelopment and subsequent gentrification, harking back to the large-scale slum clearance operations of the latter half of the last century. There is a large and well-developed literature evaluating the social impact of urban renewal/redevelopment that leads to gentrification, either as a policy goal or as an unintended policy consequence. The international literature is particularly focused on the impact of displacement. While gentrification is sometimes presented as a process of colonization of well-located working class areas by rich professionals, more nuanced research in both Britain and the USA suggests that the experience is a mixed one. Some/many residents are forced out of their neighbourhoods because they cannot afford rising rents. Many residents retain access to their neighbourhoods although they may lose their social networks, sense of belonging and commercial enterprises they have patronised for decades. Some may actually benefit if they can take advantage of rising house prices and move, or stay and benefit from better services and facilities. Public tenants are a privileged group of tenants because they are often insured from substantial rent increases even as private rents and house prices increase around them.
Hong Kong has experienced extraordinary development since World War II. Population expanded from around 600,000 in 1945 to 3.1 million in 1961, to 5.5 million in 1986 and more than 7 million today. Its economic transformation from an entrepot to light manufacturing to a higher-order services economy in rapid succession was equally dramatic. Famously capitalist, the city evolved in some two generations from a city of boat people and squatters to a global financial centre, with widely admired economic and financial institutions. Its transformation in 1997 from a British colony to a practically self-governing functional city-state was largely seamless and is now history. Hong Kong’s political development, however, remains subject to the Beijing agenda and has been less progressive, despite admirable legal institutions and robust freedoms that rival developed democracies. While aspects of its governance are exemplary, growing inequality and the rapid development of civic society and political awareness, especially since 1997, repeatedly exposes conflicts in the executive-led government both unelected by and unaccountable to society. Many underlying causes of these conflicts also find expression in urban land (re)development matters.
There is no evidence that the Hong Kong Government redevelops the inner city to cleanse it of certain undesirable groups or promote social order or dilute concentrations of social disadvantage and balance neighbourhoods, as is reported in certain European cities such as Rotterdam (Uitermark and Duyvendak, 2007) or Newcastle (Cameron, 2003). Displacement that occurs is a byproduct of redeveloping underutilized buildings. Yet the idea of gentrification (as distinct from the more neutral redevelopment or urban renewal concepts) has entered the Hong Kong lexicon. The Chinese term to describe ‘gentrification’ (士紳化) has been mentioned approximately 75 times in Hong Kong’s Chinese newspaper articles in the past 10 years, and is often associated with urban redevelopment and its impact on local culture and homogenisation of shops in older neighbourhoods. Such articles identify gentrification as the process of neighbourhood transformation into an up-market and middle-class community, and the associated rising cost of living and social exclusion of the original inhabitants. Gentrification clearly resonates with the Hong Kong community, and thus has much in common with use of the concept in the international literature regarding emphasis on displacement and exclusion (Slater et al., 2004), compared with China where this seems less to be the case (He, 2010).
Although government policy is concerned to implement urban renewal, conceived as comprising redevelopment, rehabilitation, preservation and renovation of older buildings and areas, in this paper we analyse distinctive factors and actors and their interactions that shape processes of gentrification in Hong Kong that result from state-led urban renewal, specifically redevelopment. While small-scale neighbourhood-centred gentrification that superficially may resemble gentrification in London or New York is observable in some inner-city neighbourhoods, typically gentrification appears not driven principally by private owners, nor by private-sector developer corporations, ‘pioneer’ gentrifier owner-occupiers or petty landlords. For reasons particular to Hong Kong’s urban morphology, government and public-sector resource management, the state and its agencies collectively form the key protagonists in gentrification. Three specific factors, elaborated below, are critical to understanding the urban economy, urban land development and gentrification: the nature of government and its actions in urban redevelopment; the institutions underlying government land management actions; and the city’s urban morphology.
To commence, the government of the Hong Kong Special Administrative Region of the People’s Republic of China (HKSAR) may be characterised as an executive-led, quasi democracy headed by a Chief Executive with extensive executive powers, with a Legislative Council fulfilling the legislative function, and a nominated Executive Council fulfilling an advisory function to the Chief Executive. The HKSAR government is, however, constrained by its own qualified legitimacy and sensitivity to social matters, and in urban development matters by highly developed legal and planning institutions. In urban development it functions through the Urban Renewal Authority (URA), an agency that typically engages in public–private partnership-type ventures to redevelop older inner urban area precincts.
The second distinctive factor is the leasehold land management system and its critical influence as a substantial source of fiscal revenue. With trivial exceptions, all land belongs to the government and is alienated through leases. This reveals direct state motivation to facilitate urban redevelopment, not just of land associated withstate-led urban renewal projects, but all development/ redevelopment of land. Land-derived fiscal revenue also contributes significantly to financing social spending. While social security (Comprehensive Social Security Assistance) is meagre, the state provides a range of widely utilised and non-means-tested social services. Spending on social services makes up half of public spending, with welfare programmes accounting for about half of the government’s budget, some 20% on education (providing 12 years of subsidised education and heavily subsidised university education for about 20% of the entry-level university-aged population), some 14% on social security and social welfare services, about 14% on healthcare (providing virtually free basic healthcare for all) and about 9% on housing. While there is considerable debate about how Hong Kong fits into the Asian developmentalist state model, level of service provision is high in spite of large government reserves (Wong, 2008). It is noted, however, that the city’s elderly population is amongst the poorest, reflecting a developmentalist state’s emphasis on providing social goods and services that promote economic development rather than transfer payments to low-income or disadvantaged families (Holliday, 2000). In addition Hong Kong has one of the lowest tax regimes in the world, even though some 80% of households don’t pay income tax. But to generate fiscal revenue sustainably a continuous supply of (re)developable land is required, hence the state’s interest in ‘urban renewal’. Hong Kong’s fiscal strength depends significantly on managing land as a public resource.
The third distinctive factor that informs urban redevelopment is Hong Kong’s iconic compact and dense urban morphology. Hong Kong has a total land area of around 1000 km2, with around 80% of the population residing in about 100 km2, on average around 60,000 people/km2, with some older inner-city areas at three times this density. The most densely developed inner-city areas include Hong Kong Island’s north shore, including Sheung Wan, Wan Chai and Causeway Bay; the Kowloon peninsula, including Tsim Sha Tsui, Yau Ma Tei, Mong Kok and Sham Shui Po; and the Yuen Long/Tuen Mun area, Sha Tin and Sheung Shui/Fan Ling in the New Territories. The vibrant urban economy is very much the product of this high density: a low-cost, efficient urban structure with very high returns to physical infrastructure development and highly accessible, efficient and low-cost public transportation. The dense older inner-city areas are where most urban renewal pressures occur. While newly wealthy households afford high-quality housing, much of what remains of Hong Kong’s older inner urban area housing stock provides affordable and well-located (albeit comparatively poor quality) housing for lower-income groups, the elderly who have aged in place, and others ineligible for public housing including recent immigrants from China (La Grange and Pretorius, 2013). The inner areas also support social networks, and small-scale commercial, services and light industry clusters.
The aim of this paper is to locate the Hong Kong gentrification experience within the evolving international gentrification debate. We have two objectives: first to identify the peculiarities of urban redevelopment/renewal constraints in a high-density, high-rise globalized city that has experienced dramatic economic and social change; and second to assess critically state-led urban renewal institutions and how the state deals with relocation/displacement and trends to gentrification.
Urban morphology
Hong Kong’s urban density largely stems from managing land as public resource through leasehold and constraining the city’s developed footprint. This has always placed (re)developable land at a premium, specifically well-located land with older buildings in the inner urban areas. Three factors combine to define the urban economic context within which state-led redevelopment is required to function. These are the tenure structure of housing, the evolution of housing tastes and preference with expanding wealth, and frictions in redevelopment.
By international standards Hong Kong has a very large public-housing sector. Between 1980 and 2000 housing tenure had been proportioned around 35–40% to public rental housing, 10–15% assisted home ownership, 40% private owner-occupied, and some 10% private-sector rental, which includes a large proportion of older inner-city units (La Grange and Pretorius, 2005). This remained fairly stable while total housing stock grew from around 2.0 million units in 1990 to around 2.4 million in 2010. After a massive programme to redevelop older public rental housing estates located in the urban areas, executed mostly in situ, overall public housing is modern, good quality and well maintained. By comparison, of a total of about 41,000 privately owned buildings around 10% are more than 50 years old, around 30% are between 30 and 50 years old and about 60% less than 30 years old. This appears a youthful building stock by international standards, but a 30-year-old building is regarded by government as old, and a 50-year-old building as functionally obsolete and probably in need of demolition (Development Bureau, 2010b). Most older buildings are concentrated in the inner city: a jigsaw of old, somewhat rundown and seemingly neglected older buildings between six and twelve storeys high adjacent to new up-market, high-rise (40–60 storey) guarded and gated private housing estates and/or fairly new and well-appointed public housing estates.
The second factor is the development of housing tastes and preference with expanding wealth. Being newly rich, the characterization of old buildings as obsolete is widely shared by the Hong Kong public. This is not irrational, as many older buildings date from an era when Hong Kong was a comparatively low-income society, with housing needs radically different to current preferences. With increased services employment, rapid increases in household income and the city’s integration into global finance and trading systems, middle-class tastes also became benchmarked by global peer taste aspirations. New-build (‘first-hand’) apartments in large gated estates are the preferred option. Rapid household formation, also reflecting the growth in wealth, has reinforced demand for new-build housing. As housing stock and tastes diverged, constraints on the supply of (re)developable land prevented inner-city neighbourhoods from being distressed or stigmatised by a Hong Kong version of middle-class ‘flight to the suburbs’. Hong Kong may not have many older buildings that lend themselves to rehabilitation, but inner-city areas certainly do not experience the myriad of social problems associated with stalled gentrification, for example as described by Ley and Dobson (2008) in a case study of Vancouver.
However, much of the housing stock in older inner-city buildings has not been malleable to changes in the city and society. Older flats are generally small and lack potential for retrofitting modern conveniences. Thus while the newly wealthy afford high-quality if modestly sized housing in new gated estates, much of what remains of the older housing stock continues to provide well-located, affordable housing for lower-income and disadvantaged groups. Much of it also supports social networks, while mixed use buildings also support small-scale commercial services and light industry clusters, and many small, family-owned businesses with local and loyal customers. Limited redevelopment is not the result of decline in the economic fortunes of any particular district/area in the city, or indeed the city itself; the urban land economy remained robust as has demand for well-located ‘newer’ (more functionally efficient) housing.
The third contributing factor to understanding the urban (re)development context is frictions in redevelopment. Many older buildings were poorly constructed and poorly managed; owners simply had too low incomes to afford maintenance, and/or are renting cheaply and/or are holding properties for their redevelopment potential and in the interim are happy to disinvest. 1 Further, many owners and occupiers are simply not interested in relocating, particularly the elderly and those with significant social (and commercial) ties to the neighbourhood, despite attractive financial offers to sell. Yet older buildings typically comprise a too-small footprint for redevelopment at ‘efficient scale’. Consolidation of several contiguous lots is desirable to capture benefits from redevelopment at higher plot ratios allowed with larger sites. Problems of negotiating with large numbers of ownership interests in one building compound significantly when several contiguous buildings are considered. Many buildings also have absent owners, often untraceable, leading to highly complex property rights problems and high transaction costs for remaining owners who consider redevelopment (Planning, Environment and Lands Branch, 1995). Banks are also reluctant to lend against older properties, thus constraining owner-initiated upgrading. This is not related to ‘redlining’ (see Lees et al., 2008: 7), but reflects concern for limited marketability/liquidity in the event of owners’ financial distress, and problems associated with structural maintenance and building management. When these factors are analysed dynamically, much of the gentrification pressure on well-located inner urban area housing is clearly revealed. Given effective demand and constrained land supply, supplier response (encouraged and supported by government) is to substitute capital for land through densification and high-rise development (Staley, 1994), now clearly mirrored in Chinese cities (He, 2007). The Hong Kong development industry has, in turn, evolved over some 50 years to become international masters in executing this model – but it requires large sites for economically efficient estate and individual building footprints, difficult to achieve, as elucidated above.
Within the gentrification problematique, at least in the modern era, Hong Kong’s urban morphology has slowed the pace of redevelopment and associated displacement and gentrification. However, many functionally obsolete inner-city buildings continue to provide housing and commercial services to lower-income households, in spite of the pent-up demand for higher quality housing in these vibrant neighbourhoods. It is not proposed that there has been no or even minimal displacement, but rather that urban morphology has been a major impediment to redevelopment on a scale commensurate with the city’s economic trajectory. The extent to which the state has engaged with consequent disinvestment in built assets and the consequences for displacement and gentrification is discussed below, and addresses our second objective.
The institutions of state-led gentrification
The important institutional factors that impede or promote gentrification include the leasehold land management system and its role in public finances, state-led organisations that facilitate the gentrification (‘urban renewal’) process ostensibly executed as a private-sector activity, the formal (legislative) and informal (ex gratia payments) mechanisms, and legislation that facilitates private-sector acquisition of minority interests in older buildings for the purpose of demolition and redevelopment that facilitate state-led gentrification.
Land management and public finance
Rights to land use are alienated contractually through long land leases (‘leasehold’) for specified periods (from weeks to 50-year terms, with longer colonial era legacy leases still valid), at a contracted ‘premium’ (net time value of the land use rights for the term) and with some newer leases including periodic ‘land rental payments’ (see Cruden, 2009; Nissim, 2008). Land leases are official contractual documents between lessor (the state) and lessee (i.e. the principal land ‘tenant’, often a developer), with use of land and planning and development conditions, such as development density, timing and more. For revision of the rights contained in current leases to higher and more intensive uses, a further lease premium is payable – in fact, any change that increases the use value of the land (current or in (re)development) incurs a premium. Yet for all practical purposes the property market functions similar to that in freehold rights – except that all rights are term-limited and ultimately revert back to the state. Term-limited land leases are thus a renewable resource, as every subsequent transaction yields further revenue to the state. The government further has the statutory right to ‘resume’ land (more precisely leases) if required for a public purpose. Public purpose is extremely widely defined in Hong Kong (Cruden, 2009), although lessees have powerful and enforceable property rights under Hong Kong law, similar to other common law jurisdictions –for the duration of the lease period. However, a right to renew a lease upon maturity is never implied, nor is perpetual (‘freehold’) ownership of land ever implied. The logic of land lease administration in Hong Kong is thus fairly brutal, in that owners of apartments in well-maintained estates may face the legal prospect of an expiring land lease, which technically extinguishes property rights to the apartment itself (as it is effectively a sub-lease). These circumstances of course do reflect in lease term-sensitive property prices, but, as mentioned, the Hong Kong Government has never undermined its own rights in this respect by allowing perpetual leases or aspects of freehold (for example, unlike as has happened in Canberra: see Neutze, 2003). 2 Upon lease maturity, the land reverts to the state, and leases are either renewed at a revised land rental, or offered with revised use rights at public auction or private treaty (and increased development density implies higher value and thus a premium). It may otherwise be granted for non-commercial use.
In any case, upon reversion, or indeed any transaction to do with changes in land use or lease conditions, further financial interest in the land is generated – land transactions are thus a sustainable form of fiscal revenue (La Grange and Pretorius, 2005). In practice the state is the owner of a portfolio of assets presently leased out and generating current revenue (rental income, albeit limited at present), with a proportion of leases maturing at any time and creating for the state a range of potentially lucrative options to redeploy the assets and generate fiscal revenue from selling renewed rights. Higher development densities generate higher fiscal revenues from the same plot of land (but also higher revenues for developers), thus incentives to densify are ever-present. This explains the attraction of redeveloping currently underdeveloped inner-city land at more efficient scale. The government also acts entrepreneurially and is the city’s biggest developer, if the large public rental housing and assisted home-ownership programmes are included. Fiscal revenue generated directly from land transactions, including (re)issue/renewal of land leases (‘land sales’), property tax, rates and stamp duties (tax on market transactions) contributed on average between 15% and 30% of total annual fiscal revenue over the last two decades (see Figure 1). (Re)issue/renewal of leases alone accounted for between 5% and 20% of total fiscal revenue, but this is not considered recurrent revenue and becomes part of a special ‘capital works reserve fund’, not available for financing any other government spending other than capital works. Dedicating revenue from capital assets only to finance capital expenditure in this manner nevertheless allows other fiscal revenue to be considered for social and other applications. The fiscal strength afforded by state management of its land assets has and continues to contribute substantially to maintain a low rate of personal and company tax, no value added tax or general sales tax, and almost no taxes on luxury goods. While managing land resources is certainly not the only aspect of fiscal management that has contributed to state provision of public housing to nearly half the population, universal basic healthcare, a comprehensive education system and a range of other services, the flexibility it has allowed certainly helped enable it. It has also enabled the government to accumulate fiscal surpluses estimated at some US$180 billion (in 2012), representing more than 4 years of projected expenditure. The Hong Kong Government does not deficit spend, has no fiscal-related debt, and (technically) no sovereign debt rating. Much of this fiscal strength is generated by keeping land and property values high through constrained supply – the so-called ‘high land value’ policy (Poon, 2011). However, application of these reserves has also become the subject of political tension – there are certainly many influential voices asking if such a level of reserves is appropriate when there are many pressing social problems that require attention.
Land-related fiscal revenue (HK$million).
State-led urban (re)development organisations
The public sector has a long direct involvement in urban redevelopment. In 1987 the government launched the Land Development Corporation (LDC) to accelerate redevelopment through joint-venture developments with the private sector on prudent commercial principles (Adams and Hastings, 2001, review LDC activities). The model was unsuccessful and in 2001 the LDC was replaced by the Urban Renewal Authority (URA). The URA operates on several key principles, encompassing wider urban renewal objectives but intuitively sensitive to the problems of the displaced: owners whose properties are acquired or resumed should be offered fair and reasonable compensation, tenants provided with rehousing, the community at large benefit from renewal, and residents affected by redevelopment given an opportunity to express their views on the project. It was envisaged that the URA could cross-subsidise profitable and unprofitable projects, and place greater emphasis on rehabilitation, revitalization and preservation of neighbourhoods to complement the more insensitive acquire, demolish and redevelop model of the LDC.
The URA is thus the primary agency in state-led redevelopment, typically in partnership with the private sector. Executing a small number of large projects at a time, until recently its preferred model, strongly favoured by the government’s private-sector development partners, required the acquisition and demolition of many buildings and their replacement with an integrated, master-planned, high-density, up-market development. Unlike Shanghai (People’s Republic of China) and Seoul (South Korea), however, redevelopment does not occur on the scale of entire neighbourhoods (He, 2007; Shin, 2008, 2009). It inherited a number of large projects from its predecessor, the LDC, but importantly, it has greater financial resources and powers than the LDC (including initiating resumption), and benefits from potential cross-subsidisation of non-viable projects with social merit with viable projects to achieve more comprehensive urban development outcomes. Thus, for redevelopment projects it still relies on assembly of inner-city sites and managing relocation/compensation of displaced residents, still draws on private-sector partners’ development expertise, and shares project proceeds. This is an internationally familiar model, where the state reduces frictions and social costs of redevelopment and creates opportunities for private-sector developers, for example as in Paris (Preteceille, 2007), but in Hong Kong the symbiotic relationship between the (dominant) public sector and the private sector seems stronger. LDC/URA-led redevelopment projects have been embarrassingly lucrative, inviting criticism from community activists. Commencing operations in 2001 with a LDC legacy deficit of some HK$2.1 billion, by March 2012 the URA had managed to amass an aggregate surplus of some HK$11.8 billion (work of the URA in 2009–2010, and Business Plan for 2010–2011). In large part this resulted from the scale of projects and from substantial density and upzoning in project areas. Of 39 joint-venture projects with private developers between 2001 and 2008, 10 had plot ratios exceeding 10, 23 a plot ratio of between 9 and 10 and 6 between 8 and 9 (Professional Commons, 2009). Redevelop-ment projects are also typically up-market developments providing high-end residential units and commercial premises. The scale of some projects and the impact on inner urban area residents is clearly illustrated by details of one case, the Langham Place (redevelopment) project completed in 2005 in Mong Kok, one of Hong Kong’s densest residential and mixed use inner-city areas, also a well-known, popular shopping and entertainment district. It required the demolition of 58 smaller buildings and relocation of about 2600 people to create a site of around 12,000 m2, now comprising a 42-storey five-star hotel, a 60-storey Grade-A commercial tower and a 15-storey shopping mall. Considering redevelopment projects only, URA currently lists some 52 projects, some active and some complete (there are clusters of URA projects in the older inner-city areas of Sham Shui Po, Mong Kok/Yau Ma Tei, Wan Chai and Central/Sheung Wan/Sai Ying Pun). 3
The 2011 Urban Renewal Strategy Review introduced a new model of public-sector-led redevelopment, facilitated URA involvement. The URA would continue to seek negotiated settlements with property owners and tenants (see below) to obtain vacant possession of buildings within a project area, and if necessary apply to resume land under the Lands Resumption Ordinance if negotiations stalled. Facilitated redevelopment occurs if a project is supported by a certain proportion of owners who can approach the URA to initiate redevelopment on their behalf. However, if less than (currently) 80% of owners do not support redevelopment the URA could withdraw (see Land (Compulsory Sale for Redevelopment) (LCSR) Ordinance below). The URA would primarily act as consultant to owners and help assemble title to the building(s). In this model the URA would not be able to apply for resumption nor would affected owners and tenants be eligible for Ex Gratia Allowances (see below). It was further proposed that the URA could help majority owners invoke the LCSR Ordinance to trigger an auction of minority interests – it has been suggested that unsuspecting owners may find themselves facilitated out of their properties (La Grange and Pretorius, 2013).
The URA remains the main institution that gives effect to the state’s entrepreneurial activities with regard to redevelopment of its land resources, always in conjunction with very large, very well-capitalised developers. As noted above, aggressive pursuit of urban re(development) has significant revenue implications for the Hong Kong Government and revenue from acquisition, demolition, upzoning and redevelopment of inner-city sites plays an important role. Within the gentrification problematique, the ability of the URA to assemble large sites for the construction of up-market residential and commercial developments, demonstrated by the sheer scale of the URA’s projects over the last 12 years, has promoted displacement and gentrification if only from reducing affordable inner-city buildings and consequent increased competition for access to remaining affordable residential and commercial stock by lower-income and disadvantaged households and small local businesses. However, the government has implemented a system of negotiated settlements specifically aimed to assist original inhabitants of URA project areas to remain in their neighbourhoods after redevelopment of their buildings, discussed below.
Negotiated settlements and Ex Gratia Allowances
Although the URA is an entrepreneurial institution and executes redevelopment projects in partnership with powerful developers, significant aspects of its operations are designed to mitigate financial and other distress of displaced lower-income owners and tenants, and to facilitate their remaining in their neighbourhoods. Land is only resumed as a last resort because of the draconian impression it creates, and the URA (among other state institutions involved in land acquisition) instead favours a complex system of quite generous Ex Gratia Allowances (EGAs) as basis for negotiated settlements with displaced domestic and commercial property owners and tenants. EGAs are a framework of compensation for displaced owners and tenants that has evolved over time, not subject to statute but which can be characterised as statutory compensation, based on open market value of existing use, plus some additional compensation (Lands Department, 2006a, 2006b). It is noted that while URA-led redevelopment has led to displacement (see below), it has not occurred on a scale and intensity comparable with cities such as Shanghai, but what is comparable is the exercise of state powers to achieve vacant possession of older buildings and consolidate sites to affect redevelopment (He, 2007, 2010). While comparable with the London experience (see Davidson, 2008), it could still be argued that URA mechanisms to manage the unjust aspects of gentrification are inadequate, but in significant ways the impact of redevelopment and displacement is not as harsh as in many cities in the Global South (Lees, 2012).
The principle governing EGAs for owners of domestic property is that inclusion within the boundary of a public-sector redevelopment project should provide an opportunity not only to be compensated the current market value of their properties (usually a low amount), but also to improve their housing circumstances and (notionally) remain within the neighbourhood. In principle domestic tenants should not be rendered homeless. Owners are entitled to the market value of their property plus a top-up allowance, the Home Purchase Allowance, which enables owners (in theory) to buy a better quality dwelling in the same area and compensation for ancillary expenses. It is generally conceded that the HPA is about two to three times the current market value of the original unit, which does seem generous, even though the long-standing criticism that it does not represent the value of a unit in the redeveloped scheme is perennially raised. 4 Thus the HPA should enable affected households to remain in the area and upgrade to a better quality home. Eligible displaced tenants can choose between public rental housing or a cash allowance (eligible tenants are those that meet basic eligibility requirements for public rental housing – most tenants would be eligible) (Lands Department, 2006b). The principle is that tenants’ housing needs should be met in the longer term. An important fact to note here is that in Hong Kong public rental housing is a desirable tenure for lower and lower-middle income families, especially when compared with the lower reaches of the private rental sector from where displacement as discussed here typically occurs. In this respect the Housing Authority (HA) and Housing Society (HS) provide a quota of rental flats for allocation to tenants affected by redevelopment projects, but the main issue is the availability of public rental housing in the neighbourhood.
The extent to which EGAs prevent displacement is a contested issue in Hong Kong (see Asian Development Bank (ADB), 2010). Although no hard data are available, it is certainly possible that some owners in project areas would be able to remain in their neighbourhood and also enjoy better quality housing; or they could buy another rundown unit in the neighbourhood and pocket the HPA. Some tenants would also have the opportunity to remain in their neighbourhoods if they accepted a public rental unit and if one was available nearby. If public housing is not available nearby tenants may choose to find a new dilapidated but affordable rental unit in the same neighbourhood and keep their cash allowance, which should compensate them for their moving and ancillary expenses. In practice the government’s compensation policies, however, do not necessarily enable people to stay in the neighbourhood, and so it appears that considerable displacement occurs. While the amount of the HPA may be greater than the value of owners’ units, this amount does not necessarily (or even generally) enable owners to purchase replacement housing and remain in the same neighbourhood (Urban Renewal Strategy Review Public Engagement Consultation Programme, 2009). First, the HPA is based on the estimated (notional) cost of a newish flat (assumed at around 7 years old) to replace flats that are probably more than 30 years old and in a poor state of repair (and reflecting all the problems of old inner-city buildings). Yet, as mentioned above, the inner-city neighbourhoods tend to comprise dilapidated, older buildings (similar to those from which displacement occurs) or new, very expensive buildings (the replacement buildings) with relatively little between these two extremes. Thus in practice residents are often faced with a stark choice between buying a dilapidated unit in the same area (and keeping the difference between the purchase price and the HPA) or buying a superior unit in a cheaper area and leaving the neighbourhood, or contributing a substantial amount from their savings to the HPA to buy a new(er) flat in the same neighbourhood and thus retaining access to their neighbourhood (not a very realistic option for most inner-city owners). The choice is further narrowed by reduction in the stock of affordable dwellings in neighbourhoods, precisely because it is part of the stock that is being demolished in the redevelopment project bringing about the displacement. An additional difficulty is the impact of large redevelopment projects on property prices in old buildings neighbouring the redevelopment – prices tend to rise very rapidly once a project is announced as owners and investors anticipate price rises associated with displaced buyers from the project itself. As URA projects are usually large, and with many owners receiving the HPA entering the property market in the same area at the same time, with a very similar budget (the amount of the HPA), much benefit from accepting EGAs is eliminated. Available stock in the neighbourhood is often quickly depleted and unsuccessful buyers are displaced from the neighbourhood, while speculative activity further erodes the availability of dwellings in the vicinity (ADB, 2010). This resonates with issues raised with the impact of a loss of affordable housing in gentrifying areas in cities in the USA and the UK and also the associated problem of ‘exclusionary displacement’ (Slater, 2006).
Affected tenants join a special queue of centrally located rental flats according to the memorandum of understanding between the HA/HS and the URA. However, there is considerable variation in the number of public housing estates in some inner-city areas compared with others. Vacancy rates would also vary, as would the quality and amenity of available units, although the general quality of public housing is high reflecting large-scale recent redevelopment of the stock. The HA does not provide information about the location of public flats provided to people affected by URA projects, but the low take-up rate suggests that relatively few tenants displaced by URA projects choose to relocate to public rental housing. For example between 2002/2003 and 2005/2006 of the nearly 2000 HA flats reserved by the URA for affected tenants, only 20% were taken by tenants (Audit Commission, 2006). This suggests that they are choosing to rent privately in their original neighbourhood, or rent in a nearby neighbourhood, rather than move to public housing, even though the amount of the cash allowance is not high. Further, in a state that resembles somewhat the case of displaced owners, it seems tenants who wish to remain in the same neighbourhood find themselves competing for available rental units with other households who wish to exercise the same option, while the availability of affordable rental units declines because stock is being demolished to make way for the URA-led redevelopment.
EGAs for commercial and industrial owners and tenants comprise the open market value of their property and/or interests and a top-up cash allowance. With several exceptions policies affecting owners and tenants of commercial enterprises do not aim to enable, or even facilitate businesses to remain in the neighbourhood, and in practice there is a general disregard for the ability of small, family-owned businesses to re-establish themselves in the area or even stay in business at all. Inclusion in a project area is particularly onerous for small family-run businesses. Even if owners of small businesses are compensated 35% above the market value of their premises (the prevailing EGA) this is generally insufficient to enable them to buy other premises in the same area and remain in business. In interviews with community activists and small proprietors operating in or close to large redevelopment projects, the issue that such projects destroy clusters of businesses and thus their business environment was also raised. Without this mutually supportive (and indeed competitive) environment small proprietors cannot re-establish their business and their customers dissipate. This also applies to businesses dependent on a loyal clientele of long-term customers. Proprietors who rent their premises receive cash compensation based on the number of years they have been in business; it is similarly difficult to find alternative premises in the neighbourhood and continue their businesses (ADB, 2010).
There are indications that the URA is engaging with fierce community criticism about the impact of its projects on the original inhabitants in its project areas and their difficulties in remaining in the same neighbourhood. For example, in 2011 it introduced the ‘flat-for-flat’ scheme whereby owners displaced by redevelopment could choose a flat in a new development nearby. It is too early to evaluate whether or not these concessions will check trends to gentrification. However it is noted that, to date, take-up rates have been very low. This is in part because owners have to pay the market price of the new flats and thus effectively buy either a smaller flat or top up and pay the difference required to acquire a larger flat, but also likely because of the long lead times to gain occupancy of the new flats (South China Morning Post, 2013).
Land (Compulsory Sale for Redevelopment) Ordinance
From analyses presented thus far, it may seem that urban redevelopment is an entirely state-driven activity. However, the private sector’s involvement in redevelopment at scale pre-dates World War II, reflecting the city’s rapid economic development in the last century (Wong, 1978). This widespread early redevelopment did little to improve the housing stock as many of the new buildings were poorly constructed – one of the main reasons for the poor quality of remaining stock built during this period (1950s–1970s). In the 1980s and 1990s the private sector participated in LDC redevelopment projects, and since then in URA projects. However, difficulties in obtaining vacant possession of buildings and the limited interest by owners or developers in in-situ upgrading/refurbishment/rehabilitation of older buildings at scale has mitigated private-sector-caused displacement and slowed the process of gentrification of inner-city areas, as outlined above. In order to address (re)development frictions caused by fragmented property rights, and to address the problem of consolidating fragmented property interests the 1992 LCSR Ordinance was passed. The Ordinance was primarily aimed at facilitating the private sector’s role in inner urban area redevelopment, and stipulated that if a majority owner(s) acquired 90% of units of an older building in poor repair and could not persuade the minority owner(s) to sell, the majority owner(s) (usually a developer) could apply to the Hong Kong Lands Tribunal (a special land matters-related court) to trigger a sale by auction of the minority interest(s). This legislation became one of the key mechanisms at the disposal of private-sector developers to accelerate redevelopment, but it did not generally achieve an accelerated pace of private-sector-led redevelopment.
In an attempt further to promote private-sector participation in and speed up redevelopment, in 2011 the government smuggled through the Legislative Council an amendment to the Ordinance to permit a forced sale of a minority share of a building where the majority owner had acquired at least 80% of the shares (Cruden, 2009; Development Bureau, 2010a). Whilst empirical evidence is still scarce, this has the potential to alter fundamentally the dynamics of inner-city redevelopment. Developers’ access to this legislation (or now more likely simply the threat of the legislation) will possibly have an uneven impact on trends to gentrification. To approach the 80% ownership threshold required to trigger an auction, or 20% to prevent it, developers would need to pay competitive prices for flats in older buildings, while owners offered good prices would be able to remain in the neighbourhood and possibly upgrade to better quality housing. It is notable that there is no evidence that developers target the most dilapidated buildings, which would house the lowest income and most vulnerable households; but rather target older buildings with high redevelopment potential, as may be expected. However the Ordinance is also likely to promote displacement by reducing the number of older and hence cheaper properties for purchase or rent, as redevelopment under the auspices or threat of the legislation progresses. This process complements in situ upgrading of very desirably located but rundown housing stock as is currently happening in the west as well as the east of the city centre. In these small pockets of the city there are unambiguous signs of gentrification, in particular the replacement of traditional commercial enterprises such as family-run general stores, laundries, motor repair and air conditioning repair premises and the numerous small eateries, with up-market international restaurants, bars, art galleries, wine shops and suchlike – the international signs of gentrification. There is also evidence of rehabilitation of whole small buildings and more evidence of rehabilitation of individual units in older buildings. If acquisition of buildings not only under the auspices of the Ordinance, but more perniciously under threat of the Ordinance accelerates, this should lead to considerable gentrification as poorer tenants are displaced by significantly wealthier owners and (maybe) tenants.
Conclusion
An assessment of trends to gentrification in Hong Kong highlights several key issues. The first is the importance of land as a state-owned and -controlled resource, and specifically as public-sector asset. As a consequence of state ownership and state entrepreneurial exploitation of land, Hong Kong has been developed to very high densities, reflecting the state’s high land price policy. In addition private-sector housing stock is primarily owner-occupied and development density is reflected in highly fragmented property rights. Hong Kong’s quite spectacular economic development, rising real incomes and social and cultural impacts of globalization has led to rising community aspirations for a quality living environment. Yet much older inner-city housing stock is rundown and functionally problematic although located in vibrant and highly sought-after inner-city areas. Thus one important consequence of Hong Kong’s urban morphology with regard to gentrification is that the city has not renewed its inner-city housing stock on a scale that reflects economic and cultural development. Consequently the inner city has remained accessible to lower-income families living in poor quality but affordable and very well-located housing; and many of these households have aged in place and have strong social networks developed, in many cases, over decades. Monkkonen and Zhang (2011) observe that while Hong Kong’s income inequalities increased between 1991 and 2006, segregation levels did not. The inner city is more diverse at a large scale although more segregated at a small scale, reflecting the construction of large-scale (often gated) housing estates targeted to different socio-economic groups. Simply put, in the inner-city areas in particular, the rich and poor live in close proximity. This finding concurs with the findings of Forrest et al. (2004) who found high levels of social mix across much of Hong Kong (i.e. apart from a limited number of areas of the very poor or the very wealthy). What is notable in the Hong Kong case is the relatively limited speculation associated with urban redevelopment, and limited extent of in situ upgrading, reflecting in the case of the former the complex and treacherous investment decisions associated with such speculation, and in the case of the latter, the profits to be made from running down older stock and waiting for redevelopment. We note that the future impact of the LCSR Ordinance is unknown at this time, but is likely to be significant.
Yet the government also has incentives to generate revenue from its land assets which has promoted state-led redevelopment of disinvested inner-city sites. The most lucrative method has been the design and implementation of large-scale redevelopment projects, which sought not only to reduce the extent of inadequate housing in the city, but also to participate in and benefit financially from large commercial development projects in ‘joint-venture partnerships’ with private-sector developers. In this the government has been assisted by a pliant Planning Department that has permitted high development densities of public redevelopment projects. Why then is such a strategic exploitation of its land resources, including in the redevelopment process, so important? Although Hong Kong residents have many freedoms, Hong Kong is an executive-led government and not a democracy. Like other territories in Asia, the Hong Kong Government provides high levels of social goods and services in part to acquire political legitimacy from a non-democratically elected government. Hong Kong has long been the interface between Mainland China and its major trading partners, a role that accounts for the city’s status as a higher-order services economy and its position as financial centre in the global hierarchy of cities. In more recent years Hong Kong has also had a specific role in Mainland China’s globalization trajectory that requires the city to be a paragon of propriety as a business centre and perceived to be financially unassailable. The government’s massive financial reserves, beyond anything recommended by conservative multilateral financial institutions, plays an important role in this perception. Entrepreneurial activities with regard to (re)development of land contribute significantly to financing these commitments.
Overall, in the context of the centrality of entrepreneurial exploitation of land as a resource, what has been the impact on gentrification of state policy and institutions that has historically actually constrained gentrification? Although not discussed at length in this paper, it is noted that the HA provides sought-after good quality public housing in the core urban area as well as in the later-developed new towns, and this stock was redeveloped to high standards in recent decades. The implementation of the system of Ex Gratia Allowances has also constrained gentrification insofar as residents whose flats have been bought out by the URA have retained notional access to their neighbourhoods, and notionally, access to improved housing. Similarly tenants who have obtained nearby public housing have retained access to their original neighbourhoods. Commercial operators have fared less well both in practice and in theory. The loss of shops and services preferred by lower-income original residents and their replacement by up-market shops and services targeted to incoming wealthier newcomers resonates with the international gentrification experience. But more importantly, public policy also promotes gentrification insofar as the sheer scale of public-sector redevelopment projects squeezes lower-income people out of the inner city to be replaced by wealthier residents by reducing the stock of affordable units for owner occupation and rental. The articulation of urban development and the leasehold system with fiscal imperatives is a most powerful force in trends to gentrification and urban redevelopment in Hong Kong – its effect in all circumstances seems to lead to a slow but certain reduction in well-located older inner-city buildings that provide affordable accommodation to poorer households, immigrant groups and the elderly, and often displacement of occupants in such buildings; and to an increase in supply of well-appointed developments replacing these that effectively cater for the wealthier members of society. But politically the URA seems to have reached an impasse with the community – its large-scale redevelopment projects have become so politicised that it is becoming increasingly difficult to initiate new large-scale projects. While the private sector lucratively participates with the state-led redevelopment institutions who reduce their risks in joint projects, there is also evidence that large deve-lopers are placing markers in many inner-city areas by buying up units in older buildings. But they are not yet tackling the redevelopment, or indeed in situ upgrading of the city’s many older inner-city neighbourhoods with dedication; presumably they are still very lucratively engaged elsewhere in Hong Kong, and increasingly in Mainland China and internationally.
More broadly, the story of gentrification and Hong Kong’s urban development is obviously incomplete, as is the tale of gentrification everywhere. Arguably there may not be again a functional city-state where so much wealth has been created so rapidly, where social change has been so dramatic over such a short time, and where the state has been able to finance its programmes with such a reliance on managing land resources as a publicly owned resource. The fact that its current building stock contains significant remnants of a less wealthy past, and the legacy stock generally is unable to adapt quickly to current preferences and wealth, has generated very complex present urban redevelopment problems – both with respect to trends to gentrification and state requirements to redeploy its land resources efficiently, and simultaneously to retain legitimacy with less privileged groups in society that are caught in this process. Public policy combined with the city’s specific and evolving urban morphology will continue to have a distinctive impact on the social structure of the inner city as well as the social demarcation of space.
Footnotes
Acknowledgements
We would like to thank Ms Rachel Ng for her excellent research assistance. We are also indebted to the many people who participated in interviews to share their experiences of displacement and gentrification in public- and private-sector projects, as well as community groups and social workers who shared their insights with such generosity.
Funding
The research presented in this paper was supported by a grant from the Research Grants Council of the Hong Kong Special Administrative Region, China (Project No. 143809).