Opinion | Subdivided flats in HK becomes increasingly unaffordable

By Li Yan

The issue of subdivided flats in Hong Kong has finally been put on the agenda. The 2024 Policy Address proposes to regulate subdivided flats through legislation, establish minimum living standards, and introduce a registration system. Under the new rules, all subdivided flats must meet a minimum size of 8 square meters and be equipped with independent toilets. Once professionals and the necessary certification confirm these requirements are obtained, these units can be legally rented out as "basic housing units."

The HKSAR government sees this as a proactive measure, emphasizing a people-oriented approach and responding to the central leadership's call to eradicate subdivided flats. Both central authorities and SAR governors aim to significantly improve the housing situation for the grassroots, helping them live better and gain a stronger sense of security and fulfillment in Hong Kong. However, a key concern remains: without a substantial increase in public housing, this policy will likely push up rents for subdivided flats, thereby increasing the housing costs for low-income residents.

A recent incident vividly illustrates the challenges. A friend of mine, who needed to vacate his 8-square-meter subdivided flat in Jordan for personal reasons, arranged for another friend needing housing to take over the lease at the original rent of HK$6,000 per month. However, when the landlord was informed, the landlord immediately refused the arrangement. Instead, the landlord generously waived the penalty for early termination and allowed my friend to leave at any time so prospective tenants could view the apartment. Before my friend even moved out, a new tenant had already rented the flat for HK$6,800 monthly.

According to the subdivided flat control regulations, rent increases are capped at 8% per lease term, meaning the landlord could only raise the rent to HK$6,500 if my friend stayed. However, the landlord bypassed this restriction by signing a new lease with a new tenant. He only committed to a one-year lease, effectively granting the flexibility to impose a larger rent hike the following year.

This incident highlights the power imbalance between landlords and tenants in Hong Kong. Tenants often have little bargaining power and are forced to accept rent increases or face the hassle of moving, including dealing with moving expenses and the challenge of finding affordable housing. While the law limits rent increases to 8%for subdivided flats, landlords can easily circumvent this by signing short-term leases and recalculating the rent after each term, leaving tenants feeling trapped.

A widely shared story on Xiaohongshu is sure to astonish you. A Hong Kong resident earning HK$22,000 per month reportedly lives in a 4-square-meter subdivided flat in Sham Shui Po for HK$4,000 a month. Despite her small income, she claims to save HK$200,000 annually by living extremely frugally. Her strategy? Renting the cheapest subdivided flat, avoiding public transportation, shopping for groceries once a week, meal prepping for the entire week, and never eating out. She aims to save HK$1 million in five years to start a business in the Mainland. This story also highlights that if Hong Kong's property prices remain inaccessible, it will be difficult for talented people seeking development in Hong Kong to settle in the city. Many may ultimately be forced to leave the city.

One of the key regulations proposed by the authorities is that subdivided flats must have a minimum area of 8 square meters. At the same time, reports suggest that 110,000 subdivided flats in Hong Kong do not meet this standard. The original intent of subdivided flats was to create independent living spaces with private bathrooms within a single housing unit. According to some landlords, it costs around HK$500,000 to convert a three-bedroom apartment into four subdivided units. Since many 110,000 non-compliant units are too small to be further subdivided, most of these flats may need to exit the market. If the authorities strictly enforce these regulations, fewer landlords may be willing to create new subdivided flats in the future. In a housing market already defined by insufficient supply, this could lead to a sharp rent increase, further exacerbating the difficulties low-income residents face.

Despite their flaws, subdivided flats provide a form of affordable housing for certain groups of people. With the integration of the Guangdong-Hong Kong-Macao Greater Bay Area, many Hongkongers choose to live in more spacious and comfortable mainland cities like Shenzhen. Some even work in Hong Kong but live in Shenzhen, commuting daily. Others, particularly the elderly, may not want to commute daily and instead rent the cheapest subdivided flat in Hong Kong just to have a place to sleep. For these individuals, renting a larger space is simply not cost-effective.

Some residents of subdivided flats, particularly those in industrial buildings, have expressed concerns about the government's future resettlement plans. They fear they will be unable to afford the rent of the "basic housing units". They urge the government to quickly identify resettlement units and provide relocation and rent allowances for those affected.

The government's proposal to regulate subdivided flats through legislation will likely push the costs of compliance and renovation onto tenants. With the overall supply of subdivided flats decreasing, rents will surely rise.

In light of these challenges, the authorities should consider the reality of the subdivided flat market when drafting legislation. Factors such as the environment and transportation in different areas should be considered, and a three-tier system for subdivided flats with different rent standards, starting at HK$600 per square meter, could be implemented. Additionally, a freeze on new subdivided flat renovations should be introduced, and the number of units allowed for renovation each year should be determined based on market demand. This would allow the gradual phasing out of subdivided flats from the rental market in an orderly manner. Certified units that meet the new standards could be designated as "basic housing units." Renaming subdivided flats as "basic housing units" may seem like a superficial solution that oversimplifies the problem. 

While legislating to regulate subdivided flats is a positive step from a human rights and safety perspective, the government must be cautious not to let well-intentioned policies lead to negative outcomes. Without proper regulations, subdivided flats will continue to proliferate unchecked, with rents rising to unreasonable levels, further burdening the grassroots. The most effective long-term solution lies in increasing the supply of public housing. Given Hong Kong's current social and economic realities, it is unrealistic to expect the complete eradication of subdivided flats within one or two government terms. In the short term, controlling the rapidly escalating rents of subdivided flats would already be a significant relief for ordinary citizens.

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