When Hong Kong’s first chief executive, Tung Chee-hwa, announced his housing plan in 1997, the ambition was extraordinary. The government would produce at least 85,000 flats a year across the public and private sectors, and raise the home ownership rate to 70 per cent. The idea was simple. Build more homes, make housing more affordable and allow more families to own a piece of Hong Kong. Then history intervened.

The Asian financial crisis struck. Property prices collapsed. The economy weakened. The 85,000-flat target quickly became politically toxic, and the government retreated. Nearly three decades later, Hong Kong is still wrestling with the same dilemma: how much land can the government release without destabilising the value of the land already in the system? That is the uncomfortable question behind the Northern Metropolis today.

Rising land and property values can generate government revenue and household wealth, but they also make it harder for younger generations to enter the housing market. Hong Kong took this model to an extreme.

Since the colonial era, restrictions on land supply and the sale of development rights have generated substantial government revenue. That helped Hong Kong maintain low taxation while funding infrastructure and public services. The model worked remarkably well for decades. But success creates its own problems.

Once property becomes one of the largest stores of household wealth, a sharp fall in prices is no longer simply a housing market correction. It affects homeowners, banks, developers, consumption and government finances.

The government therefore faces an awkward contradiction. It wants housing to become more affordable, but it also has powerful reasons not to let property values collapse.

Tung was arguably looking at the right structural problem. Hong Kong needed more land and homes. But the policy arrived at the wrong moment. The combination of a huge supply increase, an economic downturn and the Asian financial crisis produced a property collapse of historic proportions.

The lesson is not that Hong Kong should never increase land supply. It is that housing policy cannot be treated as a switch. Turn supply on too aggressively and the market can suffer a shock. Turn it off for too long and scarcity drives up prices, affordability deteriorates and intergenerational tensions deepen. People talk of a “high land price policy” but this is not official policy: successive administrations have rejected the idea that Hong Kong deliberately keeps land prices high.

Perhaps the more useful question is whether the economic incentives created by Hong Kong’s land system still depend on valuable land. That is harder to dismiss.

Consider the Northern Metropolis. Last month, the government awarded its first large-scale district development project in Hung Shui Kiu and Ha Tsuen to a six-company consortium including China Overseas Land & Investment, China Resources Land (Overseas), JD.com and Sino Land. The HK$1.03 billion (US$131 million) tender covers three residential sites, with the winning consortium also responsible for preparing other land and developing a smart logistics centre and public facilities.

This is an important departure from a conventional land sale. Rather than simply selling a site and leaving the government to develop the surrounding area, the new model brings private-sector capital and expertise into the development process.

There is a logic to this. The Northern Metropolis is an enormous undertaking, and asking the government to finance and build every component would place a considerable burden on public finances. The administration is therefore experimenting with different ways to share development costs and risks with the market.

The policy address suggests this approach will continue, with a second large-scale land disposal pilot in Fanling North that could be launched by the end of the year. The government also aims to prepare about 2,500 hectares of “spade-ready” sites over the next decade, including about 1,000 hectares in the Northern Metropolis in the next five years.

This is perhaps the most important change. Hong Kong is no longer simply asking how much a piece of land can fetch. It is increasingly asking what that land can help create.

The Northern Metropolis is intended to combine housing with universities, technology, logistics, industry and new communities. The government’s latest plans put university towns and the integration of education, technology, industry and talent at the centre of the development strategy. If that works, the economic value of the Northern Metropolis will eventually come from the activity generated there, not just the price of the land beneath it.

That would represent a meaningful evolution of Hong Kong’s land model. But the 85,000-flat episode offers a useful reminder. Big land policies need time, consistency and a willingness to absorb short-term uncertainty for long-term gain. The government’s approach of increasing supply while introducing more flexible development and financing mechanisms may offer a more measured route than the dramatic swings of the past.

The more interesting question is whether the city can finally build a system in which land creates economic value, rather than economic value depending overwhelmingly on land value. The Northern Metropolis may be where we find out. By Ken Ip