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Urban Renewal (Regeneration and

Gentrification)

by Dr Edward CY Yiu Associate Professor

Dept of Geography and Resource Management, Chinese University of Hong Kong

Housing Issues and Policy, Urban Studies Programme, CUHK

URSP3100

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Urban Renewal

• People supports urban renewal as the major strategy to increase land supply, why?:

Urban Renewal

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Urban Renewal

• Old housing blocks, with multiple ownership: – Exceed the designed life; – Extremely high maintenance costs; – Very low rental incomes (or very poor living conditions); – Building collapses can kill.

• http://ecyyiu.wordpress.com/2012/12/15/bd-has-not-learnt-from-the-ma-tau-wai-building-collapse-disaster/

• http://ecyyiu.wordpress.com/2013/09/05/balcony-collapses-a-review/

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Why Redevelopments Cannot be Done by Owners?

• Redevelopment cost = $3,000 psf • For an owner owning 1,000 sf, s/he has to contribute

$3,000,000 for redeveloping the building • Plus demolition cost and 2-year move-out cost (of about

$500,000) • There is also some big risks: unscrupulous contractors,

property price plummet, government bureaucracy, … • If s/he moves back into the flat, the only benefit is to have

a newer housing unit. • Who can afford to pay $3.5m every 50 years? • If there is ONE owner who disagrees (or cannot be found),

then it cannot be developed. – See Land (Compulsory Sale for Redevelopment) Ordinance (Cap.

545)

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Why Developers Can Make Profits by Redevelopment?

• Compensation is based on the existing structure; • Compensation does not include hope value; • If there are residual development potential, then the hope

value can be huge! – Who owns the RDP?:

http://ecyyiu.wordpress.com/2011/04/06/who-owns-the-residual-development-potential/

– A survey of RDP : http://ecyyiu.wordpress.com/2011/04/28/residual-development-potential-a-survey-of-large-housing-estates/

• URA projects – average residual plot ratio is 3.29 – http://ecyyiu.wordpress.com/2013/10/29/ura-demand-led-projects/

• URA profits – 123% in 2012 • The profit ratio of the recent URA’s Avenue project – 237% in 2013

– http://ecyyiu.wordpress.com/?s=%E5%9B%8D

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Why Owners Do Not Earn the RDP?

• Information Asymmetry – do you know how to identify the RDP? – Even Professionals do not! – How to share the RDP among multiple owners? – The negotiation would stuck in “the Last Takes All”

syndrome; – Cash flow again, who can pay the redevelopment cost? – Would a banker lend money ($1b) to an IO for

redevelopment? – Timing is another big hurdle, expected interest rate and

inflation rate can be very different among owners. – Refer to the recent implemented Mandatory Building

Inspection Scheme (MBIS) can tell it why.

What is the current development

intensity control by BO?

• S.19-23 Building (Planning) Regulations

(BPR);

• By Plot Ratio (pr) and Site Coverage (sc)

• Schedule 1 of BPR:

– Determine the building height and use first;

– Determine the site classification by how many

streets abutting the site;

– Determine pr and sc in the Schedule 1; and

– Determine any exemptions, concessions,

bonuses.

Ht

Domestic buildings Non-domestic buildings

Percentage site

coverage Plot ratio

Percentage site

coverage Plot ratio

Class

A

site

B C

Class

A

site

B C

Class

A

site

B C

Class

A

site

B C

<= 15 m 66.6 75 80 3.3 3.75 4.0 100 100 100 5 5 5

>15 m <=18

m 60 67 72 3.6 4.0 4.3 97.5 97.5 97.5 5.8 5.8 5.8

>55 m <= 61 m

34 38 41 6.8 7.6 8.0 60 62.5 65 12.2 12.5 13.0

....

Over 61 m 33.33 37.5 40 8.0 9.0 10.0 60 62.5 65 15 15 15

What is Plot Ratio?

• Maximum permissible gross floor area = site

area x designated plot ratio;

• i.e. gfa = sa x pr;

• Example:

– if a site of area 1,000sm;

– Abutting 3 streets (wider than 4.5m each)

– i.e. a Class C site;

– Domestic use;

– Building height is chosen to be 62m;

– Then max plot ratio given in Schedule 1 is

10.0;

– Max site coverage is 40%;

• Max gfa = 1,000 x 10 = 10,000 sm.

• 25 storey x 400sm@ = 10,000 sm.

• Covered area = 400sm (40% sa).

Each floor area

= 400sm

25-

storey

Site area = 1,000sm

pr = 10, sc = 40%

If gfa is not controlled by

remaining pr?! • The same site of area

1,000 sm.

• Build a L-shaped buildings

with @400sm floor area x

25-storey first;

• Then, there is a corner

site abutting 2 streets, of

site area 250 sm;

• Can a building with pr=9

and sc=37.5% be built

there?

• No! It exceeds the max.

gfa!

What is the current development

intensity control by BO? (2)

• S.19-23 Building (Planning) Regulations (BPR);

• By Plot Ratio (pr) and Site Coverage (sc)

• Schedule 1 of BPR:

– Determine the building height and use first;

– Determine the site classification by how many

streets abutting the site;

– Determine pr and sc in the Schedule 1; and

– Determine any exemptions, concessions,

bonuses.

• A Salient Point: any remaining gfa in the

specific site?

You can increase gfa if:

• You own the site;

• There are remaining gfa to increase; and

• It can fulfill all other statutory and land

lease requirements

Who moves my cheese?

• Remaining gfa is valuable, but:

– It is NOT a tangible asset;

– It has NOT yet existed;

– It is just a rights (or a potential

opportunity);

– Yet,

– It comes from the land;

– It cannot be separated from the site area

(gfa=saxpr);

– Who owns the site, who owns the rights!

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Private Developers v. URA

• URA is a private developer, with a special relationship with the government, – the URA Board members are appointed by the SAR Chief

Executive; – It is governed by the Urban Renewal Authority Ordinance; – It works in accordance with the government’s Urban Renewal

Strategy; – It is based on a self-financing principle, with an initial seed fund

from the government; – It can apply for land resumption to the Exec. Council.

• The compensation amount (housing price) to housing owners is more or less the same market price;

• But URA would provide home purchase allowance, ex-gratia business allowance, etc. in accordance with the government policy;

• It would do rehabilitation, heritage preservation, etc.

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Marriage Value of Redevelopment

• The marriage of two or more sites can earn more development

potential, it is called Marriage Value; • The redevelopment of one single lot may not be profitable; • But the redevelopment of the two or more adjoining sites can be more

profitable. • See the South Lane case:

http://ecyyiu.wordpress.com/2011/09/08/why-there-is-always-just-one-bidder-in-compulsory-sales-south-lane-case/

Change of site classification

• Widening of street:

– Island Resort project at Siu Sai

Wan was changed from Class B

to Class C, due to an increase of

street width;

– There are now substantial

remaining plot ratio.

• Marriage value:

– Two Class B sites married and

forms a Class C site;

– Who owns the extra unused gfa?

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Comprehensive Redevelopment Value-Added

• The marriage value of redeveloping the whole district (Comprehensive Development Areas, CDA) would be huge, because: – The development plan can be more

comprehensive – Synergy between different mixes – Provisions of better facilities and spatial

arrangements • But who can bear the mammoth redevelopment

costs? • See Kwun Tong Redevelopment Project:

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Kwun Tong Redevelopment

• Cost: $30 billion, $14 billion of which is budgeted to buy out local property owners

• Area of redevelopment: 5.3 hectares • Affected number of households: 1,656 households, or

5,000 people • GFA = 401,205 sm, Plot Ratio = 7.5 • Estimated completion date: 2021

– http://hk-magazine.com/city-living/article/plan-details-kwun-tong – http://www.strippedpixel.com/kwun-tong-redevelopment/

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Regeneration and Gentrification

• Moving the poor out of the city centre; • Gated communities; • Segregation; • Housing exclusion; • NIMBY;

• Is it an economic phenomenon or policy driven? • Why people prefer to live with people of similar

class at the same district? • Why not a social mix?

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Can a Social Mix Policy helps?

• “if people prefer to live with people like themselves we should not be forcing them to mix, because ultimately this will fail;

• Rather we should be keeping the possibility for mixing open to them.

• This means a refocus on urban design, disallowing fortress-style architecture and gated communities and

• Rethinking the architecture of insecurity and fear.”

• Lees, L. (2008) Gentrification and Social Mixing: Towards an Inclusive Urban Renaissance?, Urban Studies 45: 2465

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Why Gentrification?

• What is the incentive to redevelop? • How to solicit a higher return from a

redevelopment project? • Is gentrification issue the same as housing

affordability issue? • Why poor people want to live at the city centre?

– Transportation cost? – Job opportunity? – Long working hours? – Other benefits?

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What are the consequences?

• Gentrification can result in: – Aggravation of income and wealth inequality; – Homeless people but vacant flats; – Unemployed mass but unfilled jobs; – Uneducated kids but empty schools; – Intergenerational poor; – Money -> Location Choice -> Opportunity -> Success

– i.e. Mismatch! • See Chaskin, R.J. (2013) Integration and Exclusion: Urban Poverty,

Public Housing Reform, and the Dynamic of Neighborhood Restructuring, The ANNALS of the American Academy of Political and Social Science 647 (1), 237-267. http://ann.sagepub.com/content/647/1/237.abstract

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Previous Attempts to Tackle?

• Smart Growth http://ecyyiu.wordpress.com/2013/09/20/zoning-regulations-cause-higher-housing-price-the-smart-growth-debate-in-the-us/

• Inclusionary zoning http://ecyyiu.wordpress.com/2013/09/17/mixed-developments-inclusionary-zoning/

• There are some trials in HK, but all fail – Mixed Development at Aberdeen – Housing Inclusion Scheme at Tai Koo

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Zoning causes Segregation?

• A self-reinforcing effect:

– 1. If planners zone low density development intensity in the city

centre, but high density intensity in the countryside; -> high land

rent

– 2. Developers build luxury housing in low density zones, which

further reduces living density; -> higher land rent

– 3. High income households can afford to buy luxury housing; ->

high household income

– 4. Neighbouring districts enjoy positive externalities of lower living

density in the vicinity. -> higher land rent

– 5. The loop reiterates… • http://ecyyiu.wordpress.com/2009/06/09/town-planning-income-

segregation-in-hong-kong/ • Yiu, C.Y., Huang, Z.H. and Xu, S.Y.S. (May 2009) Asymmetric Income

Segregation, ERES 2009 (Funded by CERG HKU1230/06E) http://ssrn.com/abstract=1406855

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The End

comments are welcome. Enquiries to:

ecyyiu@cuhk.edu.hk