Hong Kong has the most skyscrapers in the world. But going high hasn’t addressed the chronic housing shortage in the city of 7.4 million, which also boasts the world’s priciest housing market. Surrounded almost entirely by the South China Sea, Hong Kong is running out of land. The government has proposed an unusual solution: Create new real estate with help from explosives.

Lawmakers want to relocate a sewage-treatment plant from the Sha Tin district—one of Hong Kong’s largest residential areas—into a hill across the Shing Mun River. The move would take eight years and free up 69 acres, and the first phase is projected to cost $265 million. The initiative is part of a larger plan from Hong Kong’s development agency to create hundreds of acres of “new” land by blasting caverns into mountains and hills around the city. The agency is studying the feasibility of moving more than a dozen facilities—including a garbage-transfer station, city archives and a vehicle depot—into enormous man-made caves.

Each move could take up to a decade to complete, but supporters say the project would clear aboveground space for other uses, including much-needed housing. In 2009 the University of Hong Kong developed a campus on land once occupied by saltwater reservoirs that were moved into a cave. In the future, concert halls, swimming pools, shopping complexes and dozens of other community facilities could be relocated, city officials say.

So far, the costly and complex idea has been well-received in a city where lack of space is a perennial headache. And Hong Kong is geologically suited to the endeavor: Its granite and volcanic rock are up to five times as strong as concrete. Thanks to urban development into the surrounding mountains, road access is already in place.

Architects hope to incorporate the rock into their designs, where possible, rather than mask it with concrete. “Think of it like a horizontal skyscraper in the rocks,” says Mark Wallace, the director of infrastructure at engineering and architecture firm Arup. Wallace led the team that worked with the government to propose sites for relocation. “When you’re in the hillside or going underground, there’s an infinite number of possibilities of space you can create.”