The Public Housing Tenants Housing Affordability and Its Relationship with Economic Indicators

The public housing tenants’ housing affordability and its relationship with economic indicators: the case of Hong Kong

Anirban Mostafa[1], Francis K. W. Wong[2] and Eddie C.M. Hui[3]

Abstract

Rent setting at affordable levels has been enforced in Hong Kong since the 1970s to take care of the lower income group tenants’ housing affordability. The government has financed the construction of over 1.3 million domestic units under the public rental housing (PRH) and various subsidised-ownership programmes, which now accommodate about half the population in Hong Kong (Hui and Wong, 2003).Among these about 31% of the total population live in the public rental units (HKHA, 2003). To ensure the affordability of rents the Hong Kong Housing Authority (HKHA) has adopted a “median rent-to-income ratio” (MRIR). The Housing (Amendment) Ordinances 1997and 1998 stipulate that themedian rent-to-income ratio for all public tenants is to be capped at 10% afterany rent variation.Rent differentials between estates are adjusted by factorslike location, transportation links, estate facilities and the general environment of the respective estates (Yip and Lau, 2002). However, the economic indicators are not considered in rent setting mechanism. This study investigates the effect of various economic indicators including real GDP, inflation rate, unemployment rate, real housing price, and real public housing rent on housing affordability (in terms of ‘median rent to income ratio’) under the current rent setting policy for public housing and tries to identify the relationships. The findings suggest that both in the long and short-run inflation rates,employment rate, and real public housing rent are strongly related to the “median rent-to-income ratio” (MRIR). The implication of the findings is that the economic indicators may be useful determinants for rent setting of public housing in Hong Kong.

Keywords

Housing affordability, economic development, public housing, Hong Kong

[1] PhD Candidate, Department of Building and Real Estate, The Hong KongPolytechnicUniversity, Hung Hom , Hong Kong. E-mail: ; phone: 852 2766 5872.

[2] Professor, Department of Building and Real Estate, The Hong KongPolytechnicUniversity, Hung Hom , Hong Kong. E-mail: ; phone: 852 2766 5821

[3] Professor, Department of Building and Real Estate, The Hong KongPolytechnicUniversity, Hung Hom , Hong Kong. E-mail: ; phone: 852 2766 5800