Responsiveness of sub-divided unit tenants’ housing consumption to income: A study of Hong Kong informal housing

Abstract

This is the first empirical study of income elasticity of housing demand of low-income households living in sub-divided units (SDUs) of Hong Kong. Housing affordability is commonly measured by either price-to-income ratio (PIR) or rent-to-income ratio (RIR), and the latter method is often found to be relatively stable over time and across countries. We contend that RIR cannot accurately reflect affordability situations because of the income elasticity of housing demand. Informal housing markets exist in Hong Kong for low-income households to pay lower and more "affordable" rent by living in units of smaller size and poorer quality, which are often with irregularities. This study found that SDU households have a relatively low income elasticity of housing demand and a relatively high RIR. They face difficulties in adjusting their housing service quality and quantity to balance their income and expenditure budget. Even so, SDU households are observed to further downsize and forgo housing facilities to make their rents affordable.