Question

“If you’re looking to save money on housing, you probably shouldn’t live in Hong Kong. It’s home to the world’s most expensive rent, according to Deutsche Bank’s 2019 edition of its annual ‘Mapping the World’s Prices’ report.” Source: Business Insider. (2020, Jan 20). The 25 cities with the highest rental prices in the world: does Hong Kong top the list?

a. State one factor on demand and one factor on supply to explain the rising rent in the housing market in Hong Kong in the past decade.
b. With the aid of a demand-and-supply diagram, explain the impacts on tenants and landlords when the government provides per-unit subsidy to landlords.

Answer 1

The biggest demand factor is the rising business volumes and financial transactions making it Financial Hub for Investors and Brokers and thus an high income population who can afford renting at costliest places pushing up rent prices. Secondly, due to lower geographical area and higher influx of capital and kabor the densification has grown massively causing lower supply and availability of cheaper rents which leads to low supply - high demand phenomenon and thus rents go up.

When government privides per unit subsidy to the landlord he can pass on these benefits to tenants by discounting prices and making some profits at same time and thus the affordability now becomes possible which again leads to higher supply of cheaper houses and thus the number of tenants grow. Now this cuses lower prices and demand grows again for this which ultimately in long run pushes prices again to where it was.

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