A solution to the accommodation shortage in Hong Kong

Hong Kong faces an acute shortage of accommodation. Its small land mass means that the supply of housing is limited, whilst the influx of people from mainland China and population growth is increasing demand. The resulting high price of accommodation typically consumes 50% of after-tax income and sometimes precludes young couples in their 20s from living together, even after they are married.

This is the background to policy of the incoming Chinese politicians in mid 1997 of increasing the supply of land for residential housing. This will be achieved by releasing more land owned by the government, the same policy as that adopted by the former colonial British government, but at greatly increased rates. The supply of land for housing will be further increased by turning water into land and extending the rail system. Speeding the links between the suburbs and the center of Hong Kong for commuters relies unfortunately on the old organized ways of traveling around. See the "A hotel can be an office can be a block of flats" Dispatch for more information on the absurdity of organized societal systems.

More of the same is not the way to solve the problem decisively, we need to change people’s… perceptions and habits of where they work and why they travel. This conventional organized model can now be unorganized because communication technologies have reduced the importance of geographical location, both between and WITHIN countries.

Even in cities such as Hong Kong considered to be cramped, space is not at a premium, only the availability of space earmarked for certain purposes is scarce. The remaining land is not considered because it is labeled differently and therefor arbitrarily ignored. We need to see a more efficient overall utilization of total space.

A hotel is just a block of flats by another name. Hotels can be converted into rented accommodation. Hotels in Hong Kong have large rooms which are very expensive. These suites and large rooms should be converted into smaller sizes of say slightly larger than a double bed for two person occupancy, and smaller for single persons. It seems such a waste that nearly every single hotel room currently includes two single beds. Such converted accommodation would appeal principally to young and old people, as it would not be comfortably large enough in theory to accommodate families, although the practice of accommodation in Hong Kong often necessarily differs from the theory.

Tourists are out shopping and exploring and sightseeing all day anyway, hence, the rooms are mostly vacant. Tourists do not need or want to pay for this level of space. They are paying too much cost for not enough benefit because the high real estate prices in Hong Kong mean that there is often no middle way between opulence and squalor. A great many tourists would prefer smaller rooms, especially with lower prices. The hotels obviously trade on the limited information and choices that visitors have: they are not typically familiar with where they are staying and therefore are not in the best position to choose the most suitable accommodation in advance of their visit or upon arrival.

The extra services a hotel provides do not justify the difference in cost between a rented flat and a hotel. Hotel guests are often paying for the provision of services which they do not use. The fact that someone is employed for 24 hour room service is irrelevant to the customer who does not use room service. I do not see why the chambermaids have to come around every day during the hotel stay to clean the bathroom, change the bed and so on. This strikes me as excessive cleanliness. Hence, by reducing the cleaning to say once a week, the hotel would save costs.

To encourage hotels to convert to rented accommodation, economic incentives could be offered to develop property in the mainland where supply of land is not as scarce but demand high. However, this would introduce the type of price distortion I argued against earlier on.

The hotels would only convert their hotels to smaller rooms, lower rates and longer stays if in so doing they could match or increase their overall revenue (income minus costs). By reducing the room size, and thereby converting what is currently a single room into three or four, the hotels would greatly expand the number of people they can accommodate by expanding the overall building capacity.

But the price the rental operators would be charging would fall significantly from their daily rate as a hotel. In fact, the extent to which hotel accommodation is more expensive than rented accommodation would be lower in Hong Kong than for a city such as Dublin, because all real estate is expensive in Hong Kong because of the land shortage. This means that hotel operators can earn similar revenues from operating rented accommodation in Hong Kong more easily.

If their occupancy rates were low, the hotels could increase their revenue from the same space by converting hotel rooms into rented accommodation. The hotels would not have to convert the entire hotel: just as several but not all of the floors of hotels in mainland China are given over to business offices and permanent suites at much lower rates for much longer stays.

In sum, by increasing the utilization of their existing real estate, primarily through room conversion, hotel operators can increase the number of people they accommodate, with little or no reduction in their revenues.

 

Author: Simon Buckingham

What do you think?

To make a comment to the author, send e-mail to simon@unorgan.com

 

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