Hong Kong: The World’s Freest Economy! Featuring The World’s Least Affordable Housing!

The city-state Hong Kong generally draws kudos from orthodox macroeconomists for its free-trade policies and vibrant services sector. Indeed, the Heritage Foundation honors Hong Kong annually as the world’s freest economy.

Yet, it is perhaps an honor increasingly lost on Hong Kong residents. In a nutshell, the cost of housing in Hong Kong is undermining the public case for “free markets.”

The typical Hong Kong apartment costs 18.1 times median household income—the middle-class cannot buy housing in Hong Kong, and not even close.

The Hong Kong government recently reported Hong Kong families were spending on average 66.1% of household income to pay mortgages.”

Okay, how about a life of renting?  “This brings the asking rent for a typical 450 sq. ft. flat in the city to HK$15,800 per month,” reported the South China Morning Post recently. That’s about $2,054 for 450 square feet. Median household income is about $3,250.

In Hong Kong, renting or buying will eat up roughly two-thirds of median household income.

The market is responding, and a new development, named the Tplus Development, is offering 128-square-foot housing flats. That’s about 9 feet by 14 feet.

This is the higher living standards to be gained by world’s freest markets? Ever escalating housing costs and shrinking living space?

Global Challenge?

If Hong Kong were a one-off, perhaps the former crown colony would only be instructive. But more likely Hong Kong is a warning, a harbinger of life in many developed nations.

All 10 of the world’s least affordable housing markets are in Hong Kong, Australia, the United States or Canada, reports the most-recent Demographia International Housing Affordability Survey. They add, “There are 94 severely unaffordable markets, with 36 in the United States, 33 in Australia, 11 in the United Kingdom, 7 in Canada, 6 in New Zealand and the one market in China. Singapore, Japan and Ireland have no severely unaffordable housing markets.”

Meanwhile, in Great Britain the middle-class is boxed out of housing markets nearly everywhere in the entire nation.

What unites these disparate high housing-cost nations and economies, with different cultures, policies regarding home mortgages, and monetary policies?

They all run chronic current trade deficits and they all zone property development.

Singapore, something of a cousin to Hong Kong, runs trade surpluses, as does Japan and Ireland. They have affordable housing.

Property Zoning

The orthodox macroeconomics profession does not regard property zoning, or the impact of chronic current account deficits (and subsequent large international capital inflows) on property values, to be macroeconomic topics.

Indeed, the Heritage Foundation gives to Hong Kong a very high 93.7 rating on “property rights,” in their economic freedom index. Thus, we see right-wing think tanks embrace restrictive property zoning as entirely consistent with economic freedom and property rights.

But looking at a Hong Kong, a Sydney, a Vancouver, a Los Angeles, a Boston, or the entire nations of an Australia, New Zealand and Great Britain, surely one can ask if the Heritage Foundation or the orthodox macroeconomics profession can profitably embrace such overt biases much longer.

What do “free markets” and “free trade” mean in Hong Kong, if real household incomes sink under crushing housing costs?


One risk of spreading very expensive housing is that monetary authorities will “tighten up.”  As we saw in the U.S. and around the world in 2008, it you torpedo an economy through tight money, you can reduce house prices. But they just go back up later.

Nevertheless some Hong Kong authorities are suggesting higher interest rates are warranted.

The second risk is that voting publics will become (justifiably) un-enchanted with the putative virtues of “free markets” and “free trade.”


Orthodox macroeconomics must be useful to remain relevant.

At present, the orthodoxy of tighter monetary policies and free trade are hamstrung by ubiquitous property zoning, and perhaps other structural impediments embedded in the developed nations.

Worse, voters may conclude the glories of “free markets” are but a ruse by the entitled to redistribute income up the pyramid.


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