Impact of accessibility on housing expenditure and affordability in Hong Kong's private rental sector

Abstract

The expenditure on rental housing as a proportion of income is usually measured by the rent-to-income ratio, which is the most commonly used affordability indicator, while the residual income approach is often taken as an alternative. This paper attempts to identify the determinants of the rent-to-income ratio, and to examine the impact of accessibility on affordability in the private rental sector. Empirical results indicate not only determinants of the rent-to-income ratio would vary, but even the same variable would have different impacts on the rent-to-income ratio and hence on affordability for locations with different accessibility. Although the rent-to-income ratio in Hong Kong is considerably higher than in most other cities, results from the residual income approach indicate that the affordability problem is not significant, and that it has a strong link with accessibility.