Tackling the issues of subdivivded units in Hong Kong : an analysis of the basic housing unit policy using game theory

Abstract

The acute issues of subdivided units (SDUs) have been a persistent and notorious symbol of housing crisis in Hong Kong, revealing the Hong Kong Government’s inadequacy in providing affordable yet quality accommodations to its citizens. Inadequate housing, in the form of SDUs, has existed in the territory to provide low-cost housings to the underprivileged for decades. Concerning the severe problems associated with the SDUs, the Government has therefore proposed the Basic Housing Unit (BHU) Policy in the 2024 Policy Address to create a legal and regulatory framework with an introduction of a set of minimum standards for upgrading the substandard SDUs to compliant basic housing units (BHUs). The regulatory regime of BHU Policy consists of the requirements mainly concerning the size, ventilation, lighting, basic amenities, and fire safety standards. Systematic registration and recognition systems are also proposed for regulating certified BHUs. However, the BHU Policy has raised concerns among major stakeholders regarding its enforcement and compliance level of owners, as well as potential adverse consequences to society, in particular for the affordability of tenants. The dissertation has therefore adopted a mixed-method methodology, in which desktop research, interviews, and game theory stimulations will be employed. Extensive literature reviews have been conducted to construct a solid understanding of the main research topic, followed up with the interviews of stakeholders for collecting opinions from different perspectives. More importantly, the dissertation mainly deploys the game theory to analyze the strategic behaviors among three major stakeholders – the Government, owners and tenants of SDUs under different enforcement scenarios. The key findings have revealed that the BHU Policy has the effectiveness in potentially improving the living conditions through strict enforcement and severe penalties imposed on the prosecuted owners, while lenient or moderate enforcement encourages non-compliance of owners. The game-theoretical stimulations, as well as the interview results, have therefore highlighted that the effectiveness of the BHU Policy highly relies on the enforcement level of the Government. The level of compliance is also significantly influenced by the owners’ cost-benefit of compliance and the affordability of tenants. Yet, the incomprehensive BHU Policy has several limitations, including but not limited to the rising rent after renovation, owners’ financial burden and no resettlement plans, further leading to unintended consequences. In view of the limitations of BHU Policy, an array of recommendations is proposed for guiding the enforcement of the BHU Policy, while minimizing the adverse impacts to owners and tenants through complementary strategies such as initial rent control measures, resettlement plans and providing subsidies to encourage compliance. To conclude, the BHU Policy is a transitional yet incomprehensive solution to the issues of SDUs. Subsequent assistance or policies, e.g., rent control and supply of public housings, should be implemented to supplement the inadequacy of the current regulatory regime of the BHU policy. This dissertation contributes to the novel analytical framework of adopting game theory in analyzing the BHU Policy, further contributing to the formulation of effective and sustainable housing policies in the future.