A bid for change in the city with the most expensive real estate in the world

Hong Kong government has long followed a policy of “not selling land cheap and ensuring that the land goes to the highest bidder…” in order to “safeguard public revenue”. It is done primarily through a public auction and tender process that makes money the only determinant of how land should be developed and who gets to develop it.

Such one-dimensional thinking has failed to meet the increasingly complex demands of our society. Awarding land to the highest bidder serves two purposes: revenue maximization for the government coffers, and ease of administration. However, there are significant hidden costs to this simple policy. It heavily favors those with deep pocket and low cost of capital, contributing to the dominance of large property interests; and it neglects non-monetary elements that are equally important in urban design.

Times have changed. With record fiscal reserves of $935bn and persistent budget surpluses year after year, revenue optimization, not maximization, should be the new mantra. Highest bid does not guarantee best design or meeting the needs of the community. To the contrary, in order to justify the winning bid, property developers often squeeze out every drop of Gross Floor Area (“GFA”) — the sum of its saleable area — at the detriment of design, liveability, sustainability, and community considerations. There is only one master in the game: GFA.

The good news is there is an alternative. Cities like Paris, London and Stockholm are showing us how to do it. Recognizing that social inclusion is an increasingly pressing political issue, Paris came up with the innovative idea that instead of auctioning land to the highest bidder, it introduced a competition — Reinventing Paris — where bidders are invited to come up with the best and most innovative ideas, even if they offer less in price. Guidelines are issued for each piece of land related to salient objectives such as affordable housing mix, mixed use etc. These guidelines can be tailor-made by site depending on the needs of the district. One neighborhood may prioritize affordable housing while another prizes open space. This flexible approach allows diversity and customization that cannot be reduced to a single bid price.

Some innovative elements of Paris’ experience are worth consideration for Hong Kong’s application. Firstly, Paris released in one go 23 sites, from brownfields to historic buildings, for bidding. The competition generated 815 letters of interest and 360 completed project ideas from which it chose a shortlist of 75 bidders for 22 sites. It generated significant international as well as local interest, resulting in project ideas that a conventional process might not produce. It also allows new and smaller players with good ideas to have a share of the market avoiding domination by a few that are capital rich but idea poor.

Recently we see in Hong Kong some new property market entrants from Mainland successfully winning bids at Wong Chuk Hang, Kai Tak and Ap Lei Chau. Their debut, however, was made via eye-popping bids that some people worried might signal higher property prices down the road. People would rather see that new players enter the Hong Kong property market not by throwing money around but by offering superior project ideas.

Secondly, Reinventing Paris asked bidders to form consortia that bring together a mix of urban actors — not only financiers, developers and industry professionals but also future users as well as local community. One of the key objectives is to develop these projects embracing the needs and expectations of inhabitants, the working population, and all users of the city. Each proposal has to spell out not only what type of space is available (residential, office, community, open etc.) but also who will be the users (e.g. young people, startups, elderlies, social enterprises). This is based on the recognition that housing is no longer just about building flats, but it is about creating spaces for real people to “live together” taking into account the evolving expectations about how people share use, and new ways of living, working, doing business and being entertained. Under the current auction method, these considerations are hardly relevant.

Thirdly, in order to achieve the above, citizens’ participation and consultation are built into the proposal preparation process. Public engagement should not be something that only the government worries about. Nor should it be done only at the tail end of a process. In Reinventing Paris, project leaders have to involve stakeholders of the city including the districts in order to understand their expectations so that proposals can be drawn up to address these expectations. Public engagement should be encouraged from the private sector and relatively early in the process. The outcome will be projects that, when implemented, are more likely to have broad support in the community and meet a spectrum of needs.

Here is my idea. Hong Kong will be selling 28 residential sites, 3 commercial sites and 1 hotel site in 2017–18, not to mention a greater amount of space that is potentially available from reprovisioning of existing government facilities. Let’s set aside half of these for Reinventing Paris-style competition and the other half to be auctioned to the highest bidders. Let’s compare the results under these two approaches. Hong Kong needs to find the courage to experiment and innovate. Other cities have shown the way. The fact that we have a good supply of land and space in the pipeline means it is a golden opportunity for Hong Kong to try something new. Let results speak for themselves. Experiment, without which cities stagnate, must be encouraged — something that Mainland cities know too well.

To reach a higher target of public housing for Hong Kong, private sector must play a part in looking for solutions. This can be done with this approach by inserting affordable housing mix requirements to different plots of land. A new class of affordable housing, as suggested by Carrie Lam , our Chief Executive-elect — somewhere between subsidized housing and private housing in quality and affordability — could be introduced through this approach.

Critics will say this approach will introduce subjectivity into the process and with it the risk of undue influence from vested interests and even corruption. I need not point out that these risks are neither new nor unfamiliar in Hong Kong. Solution has to come from process transparency and equitability, fair and effective law enforcement and the unflinching rule of law, not by holding onto an outdated Land Sale Policy that has made money and GFA the only things that matter.

An administration that truly puts “people first” must reexamine old policy tools critically. Continuing the current Land Sale Policy will only exacerbate high property prices, uninspiring architectural design, as well as the compartmentalized thinking that somehow private housing can be divorced from community needs.

It’s time for Hong Kong to break out of the straitjacket of the money-as-the-only-yardstick Land Sale Policy.