Assessment of factors contributing to the declining popularity of Nano flats in Hong Kong

Abstract

Housing affordability has long been a challenge in Hong Kong, and the prevalence of nano flats has been seen as a solution for young people looking to get a foot on the rung of the property ladder. However, their popularity has recently declined, even though Hong Kong has been consistently ranked as the least affordable housing market, and their supply was fixed due to the minimum flat size restriction. This study investigates the factors driving this trend to provide a concise picture for the stakeholders. A triangulation research methodology, including a case study, interviews, and a questionnaire, was adopted to provide a comprehensive insight into the current state of the nano flat market, as well as the factor contributing to their decline in popularity. The results indicate that several significant factors, including the shift in market sentiment towards nano flats, the shrinking market size, the relaxation of the Mortgage Insurance Programme, changes in human lifestyle due to COVID-19, and the increased real interest rate, have converged to make them less attractive to investors and potential homebuyers. Importantly, this study reveals that most factors contributing to the decline in nano flats’ popularity occurred before the extension of the minimum flat size restriction to all private projects in 2022. Given this, the government is recommended to re-evaluate the necessity of the restrictions to limit the new supply of nano flats. Additionally, stakeholders hold differing opinions regarding the effectiveness of the current minimum flat size restriction of 280 square feet in enhancing the standard of living. Therefore, the government should review the current figure of the restriction to ensure that it strikes a balance between improving the standard of living and not exacerbating the already poor housing affordability situation in Hong Kong.