How do the poor survive in an unaffordable city? – An empirical study of informal housing households living in Hong Kong

In urban economics, tenants are commonly assumed to substitute between accessibility and housing size and the substitution would become inelastic when the size is small. It explains how the poor survive in city centres. However, limited empirical study on this hypothesis is conducted because minimum housing size is commonly regulated in formal housing. Informal housing, in which the living area is not regulated, offers an opportunity for researchers to examine this hypothesis. Yet, differences between the two markets render them non-comparable. This paper contributes by conducting empirical tests on size elasticity on rent by studying Hong Kong’s sub-divided units (SDUs), which are mostly informally subdivided in housing flats, and the effect of proximity to public transportation on size elasticity of housing. The results suggest that size elasticity on smaller-sized housing rent is lower. Size elasticity of SDUs (with one-fourth of the average whole flat size) is about half of the whole flats. We further found that SDU tenants have to pay more for the same size increase when they live closer to the metro station. Compared with whole flat households, they are less willing to pay more for larger floor area.