Why is it so expensive to live in Hong Kong?

🤔What’s going on?

Nobody living in Hong Kong would call it affordable, and it ranks at the top of “most expensive cities to live” lists all the time. But what makes it so pricey to live here? 

Most rankings list the city among the top five most expensive places to live, with the Economist Intelligence Unit (EIU) ranking it in fifth place last year. Other rankings include Mercer, an American consulting firm, giving it the top spot in its “most expensive cities for expats” list this year, and bank Julius Baer ranking it in second place in its “cost of living extremely well” breakdown. 

Typically, these rankings have Hong Kong and Singapore (often considered rivals) as the most expensive cities in Asia, and they compete with a handful of Western European cities for the top spot. 

“In the case of the higher-ranking cities (Hong Kong, Singapore and Zurich), factors such as expensive housing markets, high transportation costs, and higher costs of goods and services have all contributed to high living costs,” wrote Mercer in a statement. 

🤑What is causing the high rankings?

For anyone who has lived in Hong Kong for even a month, the answer is obvious: property prices. 

While prices have come down from where they were right before the pandemic, according to an annual report from the Center of Demographics and Policy at Chapman University, the city still had the highest property prices in the world in 2023, continuing its 13-year streak as the most expensive city for housing. These high prices mean owning a home is not a reasonable expectation for the city’s residents. Only 51% of people in Hong Kong own property.

Beijing has said that Hong Kong's housing situation is a core issue that needs to be fixed in the city, with the Center of Demographics and Policy writing, “China’s central government has given Hong Kong a clear responsibility to improve housing affordability and increase house sizes, which are among the smallest in the world.”

The crunch has led to two controversial plans to fix the housing shortage: the Northern Metropolis near Shenzhen and a plan to build artificial islands called Lantau Vision Tomorrow. If these plans are completed, the government expects they could add over 1.1 million housing units in the coming decades.

But both projects – especially reclaiming land for the Lantau Vision Tomorrow – have sparked environmental concerns and worries that they will destroy the natural environment that makes Hong Kong an attractive place to live. 

That aside, housing is an obvious drag on the city’s attractiveness, with Mercer writing: “When housing costs are high, employees may need to spend a significant portion of their income on rent or mortgage payments, leaving them with less disposable income for other expenses. This can lead to financial stress and a reduced standard of living, which can have a negative impact on employee morale and well-being.”

💼Expats vs. locals

The thing about these affordability lists and rankings is that they typically analyze the cost of living for expats in Hong Kong rather than locals. 

A key difference between expat and local expenses is that many locals live with their families, which either lowers or completely gets rid of their rent or mortgage costs. According to a 2022 survey from Statistica, around 72% of Hong Kongers between the ages of 18-45 lived with their families. Expensive housing is a big factor driving this trend, with many young professionals saying “unreasonable” home prices make it necessary to either rent a place or live with their families instead.

Still, those housing cost savings get evened out by major differences in pay packages between expats and locals. For example, while expat pay packages in Hong Kong fell 2% in 2023, they were still very high, averaging HK$2.17 million (US$278,020). This is compared to the total citywide average of around HK$435,000 (US$55,800). On top of that, the minimum wage in Hong Kong is HK$40 (US$5.13) per hour, meaning the high cost of living puts a lot of pressure on the city's lowest-income residents. 

When Hong Kong increased the minimum wage from HK$37.5 (US$4.78) per hour in 2023, Wong Shek-hung, the director of the Hong Kong, Macau and Taiwan program at Oxfam, was quoted as saying, “We think this is unacceptable. It cannot cover basic needs in Hong Kong.”

To put all this in perspective, one hour of minimum-wage work right now in Hong Kong wouldn’t be enough to enjoy a tall Starbucks latte, according to a recent survey of the drink’s average prices.  

👶Raising kids in Hong Kong is expensive

Like much of Asia, Hong Kong is also facing a demographic crisis, with the World Bank estimating that the city’s fertility rate is 0.75 children per woman. That’s much lower than the global replacement rate of 2.1. The problem with this is that as the population ages, there will be more older people and fewer people in the workforce to help support them.

One reason behind this low fertility rate is how expensive it is to raise a child in the city, which a local bank estimated in 2022 would cost, on average, HK$284,000 (US$33,300) per year. That number was a 50% increase from a similar survey by the bank from 16 years before. To try and make that expense more bearable, the Hong Kong government has launched a program to give HK$20,000 (over US$2,500) to couples that have children. 

Writing about the bank’s estimate for the South China Morning Post, Paul Yip, from the University of Hong Kong, said, “To adapt a well-known proverb, it takes a village to raise a child, but it doesn’t take 6 million dollars.” 

🌏The bigger picture

While Hong Kong ranks high for its cost of living, the reality is that global inflation has also added to cost of living crises all around the world. Over the past three years, global inflation was forecast to fall from a peak high of 8.8% in 2022 to 6.8% in 2023 and 5.9% in 2024, according to the IMF’s most recent World Economic Outlook. So, while inflation looks to be going down, it’s still a major problem in the post-pandemic era.

“Inflation and exchange-rate fluctuations are directly affecting the pay and savings of internationally mobile employees (or those executing an international assignment),” wrote Mercer in a press release. 

According to Julius Baer, Europe has jumped Asia in 2024 to become the most expensive region for high-flying foreigners, driven in part by Tokyo becoming a much more affordable city, which lowered the status of the overall Asia-Pacific region. But, financial gains among the ultra-wealthy mean that the post-pandemic era has been a pretty good time for rich expats. 

“Overall, the results of this year’s Global Wealth and Lifestyle Report paint a positive picture with life settling into its new pattern,” the bank wrote in its report introduction. 

For the rest of us, rising prices are expected to make life less affordable all around the world. The EIU found that prices rose by an average of 7.4% adjusted for local currency over the past year.

The International Monetary Fund wrote, “Although global food and energy prices have fallen from their peak levels in mid-2022, domestic prices and the risks to food production remain elevated in many economies, hurting mostly poorer households.”

🗣️What are people saying?

“If you give up on your dreams simply because of a public housing unit, I believe that would be regrettable.”

– Hong Kong Chief Executive John Lee, referring to locals deliberately depressing their salaries to qualify for public housing 

"Young people like to have more freedom and more control over their lives ... [and] they are concerned about the financial difficulties they will experience if they want to raise a family."

– Paul Yip, the University of Hong Kong 

“Private property and healthcare costs are also very high. Hong Kong remains among the most expensive cities globally for property prices”

– Julius Baer, on why Hong Kong is an expensive city

“As housing costs rise, organizations may need to allocate a larger portion of their budgets to provide competitive compensation packages that include housing allowances or subsidies. This, in turn, may put a strain on the financial resources of these organizations, especially if they have a large number of employees in high-cost areas.”

– Mercer, in its cost of living report

“Many cities across the world continue to struggle with a cost-of-living crisis, which has sent prices soaring over the past two years.”

– The Economist Intelligence Unit