Hong Kong has beaten its own record to post the worst affordability ratio in the history of the annual rankings produced by urban demographic analysis website Demographia. It now costs 21 times the median annual income to buy an average-priced Hong Kong home, 40 percent higher than Vancouver and Sydney, which are the next worse off.

How can Hong Kong solve a housing crisis that sees needy families wait half a decade to get a public rental unit? How can the city provide encouragement to young professionals entering the workforce but who say they will consider moving abroad so they can afford a home?

These were the thorny issues considered during a panel session titled “Solving Hong Kong’s Housing Crisis,” held as part of the ULI Hong Kong conference in March. It took place at the newly redeveloped Victorian prison complex, now known as Tai Kwun, a dramatic example of adaptive use in Hong Kong’s commercial heart, Central.

In one step toward addressing its housing conundrum, Hong Kong has adjusted its policy on the public/private housing ratio, making it to 70:30 in the favor of public or subsidized housing, with 30 percent set aside for private developers. The ratio had been 60:40 since 2014.

The government, therefore, will keep more land for public housing and release fewer plots for sale to developers. However, it is not increasing the overall supply of land for housing. Because the government is the ultimate owner of all land in Hong Kong and decides how much to release, there is more of an expectation regarding bureaucratic action on housing in this city than elsewhere in the world.

“The housing crisis cannot be solved by the private sector alone, and building smaller and smaller flats is not the solution,” said Donald Choi, chief executive officer of developer Chinachem Group. Private developers have taken to building “micro” and “nano” flats to make the price point realistic for first-time buyers, he noted. “Pushing the poor to the private sector market will obviously be unaffordable.”

There is a difference between providing a roof over everyone’s head and providing everyone with a property they own, Choi noted. The government first needs to take care of fundamental welfare, he said.

“You cannot deprive Hong Kongers from a dignified life with adequate accommodation,” Choi said. “We are disenfranchising a lot of the underprivileged from the housing sector in Hong Kong.”

A 10-year target exists to release a total of 450,000 units in Hong Kong. Of that, 220,000 would be public rental housing, and another 95,000 would be subsidized housing. That would leave 135,000 apartments to go on sale as private-sector flats.

However, the government never hit its stated target for public flats since it last altered the ratio in 2014. The actual number of public housing units constructed accounted for 47 percent of the units that came to market.

As a result, the backlog of qualified people waiting for public housing has only grown. Repeated delays and the lack of available land has swelled the ranks in line for public housing to 270,000. The wait is now five-and-a-half years.

Any subsidized units that come up for sale are heavily oversubscribed. That comes as no surprise since they are sold at a discount of at least 30 percent—free money for those lucky buyers who snatch a unit.

Although the problem is a thorny one, Choi believes it is not without solutions—particularly for a well-heeled government that is in the luxurious position of consistently boasting large budget surpluses.

The government currently spends HK$33 billion (US$4.2 billion) from its budget on subsidized housing, Choi said. However, it spends an even larger sum, north of HK$100 billion (US$12.7 billion), on roads and bridges.

“The government should be bolder to spend money on a public housing program,” he asserted. “We need to look at housing before we build so many infrastructure projects.”

It is a hot topic now that the Hong Kong government has proposed a HK$1 trillion (US$145 billion) megaproject to build an entirely new island cluster on 1,000 reclaimed hectares (2,500 acres) off the south coast of Lantau Island.

Sachin Doshi, founder of rental accommodations company Weave Co-Living, agreed that there is a misplaced idea that everybody in a city should own his or her own home.

“For as long as I can recall, owning a home in Hong Kong has been a phenomenal way of creating wealth,” Doshi said. “Everyone collectively—and we’re all responsible—has let the party go on for a bit too long.”

Doshi’s part of the solution is to create shared apartment blocks. Weave Co-Living opened its first property, Weave on Boundary, last August, having invested US$85 million to overhaul a hotel. The company in November then won US$181 million in backing from private-equity investment firm Warburg Pincus to fund future projects.

Doshi, while talking up his company’s prospects, said he has seen a shift in attitudes among the younger generations. Faced with the prospect of saving their entire lives and still not being able to afford to buy an apartment, recent university graduates see the virtue of greater flexibility that comes from renting a small space of their own that shares communal space with other tenants, he said.

Young Asian professionals share their space with three or four generations of family members if they choose to live at home anyway, he noted, so the move to a small private space with a shared larger space, located in a large-occupancy rental block, is often an upgrade in terms of independence and privacy.

In the United States, 40 percent of apartments are institutionally owned. The total market capitalization of the real estate investment trusts that hold those units is around US$200 billion. But nothing like that exists in Hong Kong.

“We need an ecosystem to encourage a thriving rental accommodation market,” said Doshi, the former head of private real estate investments in Asia for the Dutch pension fund APG Asset Management.

The current structure of property sales in Hong Kong is designed around private sales, he notes. “The period of time that a developer’s capital is at risk is very limited,” he said. “They can be aggressive on land prices because they are de-risking that land very quickly,” through sales.

The Hong Kong government likely would need to earmark certain plots of land exclusively for rental accommodation if it truly wants to spur that part of the market. The land prices would then have to be structured in such a way that they mesh with the idea of holding property for long-term yield.

Even the financing available in Hong Kong for commercial investment in real estate is short term. Whereas institutional owners in the United States may have access to 10-year financing, it is unusual to get terms longer than three years in Hong Kong. “It doesn’t make sense,” Doshi said. “You are constantly refinancing your obligations.”

Warburg Pincus has the option to scale up its investment in Weave Co-Living to US$413.5 million if all goes well. It has already demonstrated strong interest in the rental accommodation market in mainland China, where it has led a financing round of 4 billion yuan (US$595 million) in Ziroom, one of China’s largest rental apartment brands. In 2016, it combined with Avic Trust to invest US$300 million in institutional rental apartment firm Mofang Apartment in Shanghai.

Choi believes public/private partnerships are also something that Hong Kong should explore. The private sector’s self-interest is currently to monetize every project in which it is involved. “That’s a very short-term view,” he asserted. Perhaps the system needs to be adjusted to create a blended form of public/private property, with affordable units part of developments where other parts of the project can be sold, he suggested.

“We need to get our fundamentals straight,” he said. “There are 1.3 million people living under the poverty line. It doesn’t matter how much private housing we build. Public housing is the key.”